Raj Rajaratnam, the billionaire founder of the Galleon Group hedge fund company, goes on trial in New York on Tuesday, accused of participating in one of the largest insider trading cases in years.
U.S. officials say Rajaratnam made millions of dollars trading stocks based on information he received from a network of friends and associates at major companies including Intel, IBM and Goldman Sachs.
"I think Rajaratnam, if you have a look at the allegations that have come out, appears to be a bit like the spider at the center of the web," says Joseph Grundfest, a former commissioner of the Securities and Exchange Commission.
Pillars Of The Community
Those accused of passing on information to Rajaratnam include a former senior vice president of IBM and a former board member at Procter & Gamble. That makes this case different from typical insider trading cases, which tend to involve mid- or low-level employees at companies, says securities lawyer Thomas Ajamie.
"This is one of the very few times that I can remember where you've had such senior supposed pillars of the community, if you will, involved in insider trading cases," Ajamie says.
Many of those Rajaratnam allegedly conspired with have themselves been charged, and most have pleaded guilty. Some are expected to testify against Rajaratnam in court. But Rajaratnam has chosen to fight the charges, attacking the credibility of some witnesses and sharply criticizing the government's handling of the case.
The trial is expected to hinge on thousands of hours of wiretapped conversations between Rajaratnam and his associates, the kind of evidence usually seen in organized crime and drug cases. Rajaratnam's attorney fought unsuccessfully to keep the tapes from being admitted as evidence in the trial.
The use of the tapes "is one of the things that is going to make this trial really quite different from any other insider trading case that's been tried, at least in recent memory," says Grundfest, the former SEC commissioner who now teaches at Stanford Law School.
In most insider trading cases, prosecutors are forced to rely on circumstantial evidence, he says. They can establish that the defendant spoke to someone else and then traded stock, but they can't prove what was said in the conversation. With the tapes, jurors will be able to listen to what was actually said.
A spokesman for Rajaratnam declined to comment about the trial.
A Success Story
Rajaratnam, 53, was born and raised in Sri Lanka before receiving his MBA at the University of Pennsylvania's Wharton School. After working as an analyst, he rose to become president of the investment banking boutique firm Needham & Co. and then left to found Galleon.
In 2009, Rajaratnam's wealth was estimated at $1.5 billion, making him No. 236 on Forbes magazine's list of the wealthiest Americans. But at the same time, U.S. officials were already deep into an investigation of Rajaratnam's trades.