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A former portfolio manager at Raj Rajaratnam's Galleon Group described pressure at the hedge fund to get "an edge" in trading and said he gave inside tips from a Morgan Stanley investment banker to his boss.
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The testimony on Tuesday of Adam Smith, the first former Galleon employee to testify at the trial, provided a glimpse into the inner workings of Rajaratnam's hedge fund.
Smith said he passed on confidential information to the one-time billionaire, including periodic email updates written in code on a pending merger he learned of from the banker.
Smith, 39, said he referred to the two companies, Integrated Circuit Systems and Integrated Devices Technology, in code as the "two eyes" to Rajaratnam. The deal was announced in June 2005 and was valued at $1.7 billion at the time.
"I remember after the announcement having a sinking feeling in my stomach that this may be a problem," he said on the witness stand in Manhattan federal court in the biggest Wall Street insider trading scandal trial in decades.
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Sri Lankan-born Rajaratnam, 53, is accused of making $45 million in illicit profit between 2003 and 2009 on stock tips from high-placed corporate insiders. He has vowed to clear his name at his criminal trial, arguing his trades were based on research or publicly available information.
Smith pleaded guilty in January and said he leaked details about merger activity and earnings reports to Rajaratnam and others at Galleon.
Smith was calm on the witness stand, leaning on an elbow and chewing gum as he answered questions. He described everyday operations at Galleon, including intense 8:30 a.m. meetings with analysts.
He said combining a tidbit of confidential information on a company with solid research on its sector was often called "having two torpedoes in the water."
"If one of them misses, the other is likely to hit."
LEAKED DETAILS
He said Kamal Ahmed, a Morgan Stanley banker in California, tipped him about the pending merger of Integrated Circuit and Integrated Devices in 2005.
About a year later, Smith had lunch with Ahmed at a Chinese restaurant in Stanford, California, where the Morgan Stanley banker leaked details of Advanced Micro Devices Inc's interest in buying ATI Technologies Inc. Immediately after the lunch in May 2006, Smith said he passed the news of the pending takeover to Rajaratnam.
No charges have been announced against Ahmed. Morgan Stanley said in January that the banker had been put on leave.
