Some of what Raj Rajaratnam heard this week must have been very heartening indeed. But did his lawyers make a tactical mistake?
First, the heartening words. Yes indeed, a business professor testified on behalf of Rajaratnam: a variety of trades by the defendant’s Galleon Group LLC hedge fund were “consistent” with information widely available through research reports or news articles, just as the defense has maintained all along.
On Friday, Gregg A. Jarrell, a finance professor at the University of Rochester’s graduate business school, “took jurors through a variety of Mr. Rajaratnam’s trades, showing chart after chart of information he said he was publicly available before any alleged tips to Mr. Rajaratnam,” The Wall Street Journal reported.
“In your view, is that information consistent with a reasonably sophisticated investor buying shares of Clearwire in this period?” asked Terence Lynam, a defense lawyer, referring to one of the trades in question.
“Yes,” the witness replied.
The fact that Jarrell was allowed to testify at all was a small victory for the defense; federal prosecutors in the Southern District of New Y0rk had moved to keep him off the stand, as we reported, arguing that the issues at hand were outside his expertise. But Judge Richard J. Holwell let Jarrell appear.
It’s a pretty safe bet that prosecutors will try to convince jurors that Jarrell doesn’t know what he’s talking about and should stick to teaching.
But for the moment, at least, the billionaire Rajaratnam can hope that jurors will be persuaded that the trades on which he made a relative pittance ($63 million or so; the figures change) were the product of good old-fashioned hard work and shrewd intelligence — not illicit insider tips, as the prosecution is trying to prove by a series of tape-recorded phone conversations and a parade of witnesses, many of whom have pleaded guilty in the hope of leniency.
Now for the development that may have been a tactical mistake, at least in the opinion of one observer. It concerns the testimony of Richard Schutte, former Galleon Group president who left to start his own hedge fund in 2009. Schutte, too, was called by the defense to buttress the “hard work and shrewd intelligence” theory.
Oh, by the way: weeks before Rajaratnam went on trial, his family invested $15 million in Schutte’s hedge fund, on top of a $10 million investment made some months ago.
“Reed Brodsky, a federal prosecutor, finished his cross-examination of Mr. Schutte with this detail, raising the question of whether the investment was in some way compensation for his testimony on Mr. Rajaratnam’s behalf,” Azam Ahmed noted in The New York Times. “It was the first time jurors had heard of the investment.”
And perhaps the timing was a mistake, Ashby Jones speculated on The Wall Street Journal’s Law Blog. Perhaps the defense should have “pulled the sting” (Jones’ words) on direct examination, telling the jurors right away that, yes, Rajaratnam invested with Schutte, rather than let prosecutors elicit that fact.
“There is no allegation that the financial relationship between the men is illegal,” Jones noted, “but legal experts say it is unusual for that relationship not to be disclosed during direct, or initial, questioning of a witness.”
So Rajaratnam’s lawyers “tried to play down the significance of Schutte’s continuing business relationship with Rajaratnam,” as Jones recounted.
“Did Mr. Rajaratnam ever offer anything in exchange for you to testify at trial?” asked defense lawyer Michael Starr.
“Absolutely not,” Schutte said, saying he didn’t consider Rajaratnam a friend: “I don’t socialize with him. I don’t golf with him. I don’t go out to dinner with him.”
The relationship, Schutte said, was strictly business — profitable business, it must be noted.
