(AP) — Jurors on Monday considered the fate of a hedge fund founder accused of making tens of millions of dollars through insider trading after a judge reminded them that they can rehear any of the dozens of taped conversations between the defendant and his friends.
Deliberations began at noon Monday as the trial of Raj Rajaratnam entered its eighth week. They ended for the day four hours later after jurors asked to see some defense exhibits that they didn't know they already have in binders and some graphs prosecutors showed them during closings, which they can't see again because they're not exhibits.
Before they were sent away to deliberate, jurors were instructed on the law by U.S. District Judge Richard J. Holwell, who said they could choose to listen to the secretly taped conversations that prosecutors say represented the first extensive use of wiretaps in an insider trading case.
The conversations have given jurors a colorful dose of the go-big-or-go-home mentality at Wall Street firms, including the offices where the 53-year-old Rajaratnam made his name and enough money to be listed for a time among the world's richest billionaires.
Now the jury must determine whether the conduct caught on tape was criminal. Regardless of its decision, the highly publicized audio evidence alone seems certain to make an impression on high-stakes financiers and how they do business.
The wiretaps should "scare the hell out of anyone thinking about doing insider trading," said Ed Novak, a veteran white-collar defense attorney in Phoenix.
Federal prosecutors in New York played nearly 50 tapes of conversations between the defendant and fellow portfolio managers, analysts and executives at public companies, including some who have pleaded guilty to charges that they tipped him off.
Prosecutors accuse Rajaratnam, who was arrested in October 2009, of making at least $68 million by trading illegally after he started his now-defunct family of hedge funds, the Galleon Group, more than a decade ago.
Assistant U.S. Attorney Jonathan Streeter said in final rebuttal closing arguments Monday that the defense wanted the jury to defy logic, reality and common sense and to ignore wiretaps, cooperating witnesses and a pattern of trading securities that points to guilt.
Defense attorney John Dowd told the Manhattan federal jurors in closing arguments last week that what they hear on the tapes is nothing more than his client discussing stock outlooks that were widely known among professional traders who pay attention to every scrap of information on the securities they follow.
The defense focused on the intricacies of what constitutes material and immaterial or public and non-public information and on the finer points of when Rajaratnam received guidance from an in-house analyst versus one of the people prosecutors say was a tipster.
Those details are "going right past most jurors," Novak said. He predicted jurors were "going to immediately talk about those tape recordings, and that's where the case is going to be decided."
One of the only defenses against the wiretaps is "don't believe your ears," said Jonathan New, a former prosecutor now in white-collar defense in New York. "That's a very hard thing to sell."
Prosecutors alleged in their closing arguments that Rajaratnam, who was born in Sri Lanka, was motivated by money and a desire to "conquer the stock market at the expense of the law."
The gunslinger mindset of the Galleon chief and others, the government says, was demonstrated in a July 2008 conversation with admitted conspirator Danielle Chiesi in which they gloat over a blockbuster inside trade.
"But it's a conquest right?" Rajaratnam says.
"It's a conquest," she says. "It's mentally fabulous for me. ... You're a warrior. I'm a warrior."
And there's more, like the day in July 2008 when prosecutors say a brassy-sounding Chiesi called Rajaratnam to give him an inside tip that a stock price was dipping.
"They're going to guide down," she says. "I just got a call from my guy. I played him like a fine-tuned piano."
Prosecutors say Rajaratnam taught Chiesi to cover her tracks when she was trading on secrets by moving money in and out of companies to imitate an innocent investment pattern. During an August 2008 conversation, she asks him if she should use the tactic with a computer chip maker whose stock she thinks might shoot up 30 percent once a secret's out.
"I think you should buy and sell, and buy and sell, you know?" Rajaratnam tells her.
At a minimum, the sometimes brazen tone of the tapes shows that Rajaratnam and others — while cautious in email and instant messages — were uninhibited on phone calls. In another call, Chiesi muses that she might be under investigation and tells Rajaratnam she's "glad that we talk on a secure line" — a segment that drew muffled chuckles in the courtroom.
The exchange reflects a sense in the hedge fund culture "that the phone is a safe place," said Eric Fisher, a New York defense attorney and former federal prosecutor. "And it usually is — absent a wiretap."
The behavior exposed in the Galleon case is still outside the norm on Wall Street, said New, the federal ex-prosecutor and New York defense attorney. Still, he added, if federal authorities are seeking to send a warning, the securities industry is hearing it.
"There's a concern on Wall Street that you have a very aggressive prosecutor in the picture," he said.
The Galleon investigation, which led to more than two dozen arrests and 20 guilty pleas, has already led firms where employees have access to secrets about public companies to tighten policies and procedures, said Latour "L.T."' Lafferty, a former federal prosecutor now practicing white-collar defense in a Tampa, Fla., firm.
"When you start seeing people in handcuffs doing the perp walk, that's called one healthy dose of reality," Lafferty said. "The government warns you against this type of conduct, and everybody looks the other way until people start getting arrested."
But Richard Scheff, a former Department of the Treasury official and defense attorney in Philadelphia, predicted that human nature would trump the case's deterrence effect.
Decades of wiretapping by federal authorities in a variety of cases "hasn't deterred a lot of people, and the reason is nobody thinks it's going to be them," Scheff said.
"What drives this kind of conduct," he added, "is greed, and greed colors judgment."