Earlier today, Richard Schutte, former Galleon Group president and chief of research at the hedge fund, took the stand in the trial of his ex-boss, Raj Rajaratnam. The defense team led by attorney John Dowd attempted to use his testimony to contradict that of individuals called by the prosecution, which rested its case last week, arguing that Raj is guilty of insider trading. Today, via Schutte, we learned three reasons why Raj-Raj could potentially be innocent.**
Reason No. 1: Raj was just really well-versed in the companies Galleon covered.
Schutte said that the hedge fund employed 35 analysts at its peak in early 2008 and each was expected to be expert in as many as 15 companies. The analysts had to file weekly reports to Rajaratnam, he said. Every morning, Rajaratnam led a meeting of dozens of Galleon employees to review new “data points” -- news accounts, regulatory filings and research -- that might influence stock prices, he said. “He was the most prepared of any of us,” Schutte said of Rajaratnam today in Manhattan federal court. “He’s amazingly educated on the issues at hand.”
Reason No. 2: Schutte never saw Raj ask for material, non-public information in front of him.
“Did you ever see him ask for inside information?” defense attorney Michael Starr asked.
Reason No. 3 (and this is probably the most important): Raj had an extremely lucrative secondary source of income, rendering a need for ill-gotten gains unnecessary.
Schutte testified that Galleon analysts and portfolio managers engaged in a “continuous process of information sharing” as part of its strategy of “arbitraging consensus,” or identifying where Wall Street’s consensus was wrong. Galleon had a “very disciplined, very methodical” process of analyzing research, he said. “There’s all sorts of information,” he said.
Analysts arrived at work at 7 a.m. and had to be prepared to field questions about the companies they covered at the 8:30 a.m. meeting that Rajaratnam led, Schutte said. Employees who showed up late were fined $25, he said. Rajaratnam then retreated to his office where he fielded phone calls, reviewed data on his six computer screens and met with analysts, he said.
What more proof do you need?
**If all the taped conversations in which he thanks people for inside info are found to be fake.