Hedge fund founder Raj Rajaratnam was found guilty on all 14 counts of insider trading in a sweeping victory for the government and its aggressive use of phone taps to prosecute Wall Street crimes.
Rajaratnam, the central figure in the broadest insider trading investigation in decades, sat expressionless as the judge's deputy read the jury's verdict to a hushed courtroom. The Galleon Group founder could face at least 15 years in prison when he is sentenced on July 29.
Wednesday's verdict, which many experts predicted given evidence from dozens of secretly recorded telephone calls, was a vindication of the prosecution case that Rajaratnam ran a web of highly-placed insiders between 2003 and March 2009 to leak corporate secrets. He earned an illicit $63.8 million as a result, the government argued.
It's an historic verdict. It's a dramatic verdict, said Bill Singer, securities lawyer with Gusrae, Kaplan, Bruno & Nusbaum.
It will likely set the stage for a dramatic change not only in the way that the Wall Street insider-trader activities are investigated and prosecuted, but most likely this will have a chilling effect on individuals and companies that trade.
The tipsters included executives at major blue chip companies such as Intel Corp, and Rajat Gupta, who was once head of elite management consultancy McKinsey & Co and a former Goldman Sachs Group Inc board member.
Gupta's involvement as an unindicted co-conspirator prompted the government to make the unusual move of calling Lloyd Blankfein, the investment bank's chief executive, to testify at the trial.
SILENCE, LITTLE EMOTION
The jurors filed slowly into the courtroom from the jury room in mid-morning for the verdict of five counts of conspiracy and nine counts of securities fraud to be read.
Under federal sentencing rules that are not binding on the judge, Rajaratnam faces between 15 -1/2 years and 19 -1/2 years in prison, prosecutors said.
Chief defense lawyer John Dowd said Rajaratnam, 53, will appeal the case. In particular, he is expected to challenge the use of secret recordings -- tactics historically deployed in organized crime and drug trafficking cases, not white-collar probes.
We'll see you in the 2nd circuit, Dowd told reporters in a reference to the appeals court in New York.
Rajaratnam's lawyers had stuck consistently to their main theme that his trades were guided by a trove of research and public information. Last November, they lost a bid to suppress the wiretaps after arguing that investigators misled the judges who approved the surveillance.
Galleon had $7 billion under management at its peak in early 2008. It was wound down without losses to investors after the October 2009 arrest of Rajaratnam, a longtime U.S. citizen and the richest Sri Lankan-born person.
The case was the first Wall Street insider trading trial to draw such wide attention since the mid-1980s scandal involving speculator Ivan Boesky and junk bond financier Michael Milken.
Prosecutors said Rajaratnam traded illegally on at least 15 stocks, many of them technology companies such as chipmakers Advanced Micro Devices Inc and ATI Technologies Inc, and search engine Google Inc.
After the jury was dismissed, Rajaratnam was released until his sentencing by presiding U.S. District Judge Richard Holwell. He is free under a $100 million bail package that will now include an electronic monitoring device and house arrest in his Manhattan apartment.
GREED AND CORRUPTION
New York's top federal prosecutor Preet Bharara, who has made insider trading cases a priority, said in a statement that Rajaratnam let greed and corruption cause his undoing -- echoing a theme pressed by trial prosecutors in their statements to the jury.
We will continue to pursue and prosecute those who believe they are both above the law and too smart to get caught, Bharara said.
The verdict was announced on the 12th day of deliberations by jurors, whose occupations ranged from workers in New York's education and transportation departments to computer graphics.
The jurors declined to be interviewed. One alternate juror, who heard all of the trial evidence but did not take part in the deliberations, said he was not surprised by the time the jurors took to decide.
I didn't think it was going to be so open and shut, said Philip Wedo, 35, an unemployed writer and editor, when contacted by phone. I didn't think they would get him on all 14 counts.
Meanwhile, across the country in Las Vegas where one of the hedge fund industry's biggest conferences was getting under way, managers and investors buzzed with the news. Did you hear? Guilty on all charges, one attendee whispered.
Litigation experts said the phone taps strengthened insider trading charges, which historically have been difficult to prove because they rely on circumstantial evidence.
Besides wire taps, prosecutors were armed with testimony of three former friends and associates of Rajaratnam -- former McKinsey & Co partner Anil Kumar, former Intel treasury group executive Rajiv Goel and former Galleon employee, Adam Smith.
All three pleaded guilty to criminal charges and agreed to cooperate with the government in the hopes of lighter sentences.
But the recordings provided the prosecutors' best evidence. In potentially one of the most damning exchanges, Rajaratnam was heard discussing information he received from Gupta about Goldman Sachs, including the first quarterly loss in its history in 2008.
I just heard from somebody who's on the board of Goldman Sachs, they are gonna lose 2 dollars per share, Rajaratnam was heard telling a colleague on one call. So what he was telling me was that, uh, Goldman, the quarter's pretty bad.
Rajaratnam is the only one out of 26 people charged in the broad Galleon case to go on trial so far. Twenty-one pleaded guilty and one defendant is at large.
A second trial of three former securities traders, one of them a former Galleon hedge fund employee, is scheduled to start on Monday in New York with phone tap evidence also key to the prosecution evidence.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.
(Additional reporting by Jonathan Stempel, Dan Levine, Scot Paltrow, Andrew Longstreth, Svea Herbst-Bayliss, editing by Dave Zimmerman, Martin Howell)