Raj Rajaratnam demanded discipline at his Galleon hedge fund, fined late-comers to his morning meetings $25 and never asked any company for inside information, one of his former top lieutenants testified.
One-time Galleon chief operating officer Rick Schutte took the witness stand at Rajaratnam's insider trading trial on Monday as the defense presented its side of the case to New York jurors who have heard five weeks of prosecution evidence including FBI phone taps and witnesses.
Schutte, hired by Rajaratnam in June 2004 after spending 10 years at Goldman Sachs Group Inc as computer hardware and storage analyst, repeatedly used the word discipline to describe life at Galleon.
Speaking calmly in Manhattan federal court, he called Sri Lankan-born Rajaratnam very professional and educated about the issues facing companies covered by Galleon funds for its investors.
The case is part of what prosecutors call the biggest probe of insider trading at hedge funds on record. Rajaratnam, 53, is charged with conspiracy and securities fraud and could be sentenced to up to 20 years in prison if convicted.
The jury could hear closing statements later this week. The defense said it has not decided whether Rajaratnam will testify. It also said it wants to call an additional witness -- Geoffrey Canada, head of Harlem Children's Zone of Harlem, New York, which has apparently benefited from Rajaratnam's philanthropy and board service.
Schutte was asked by a defense lawyer, Michael Starr, whether he ever saw Rajaratnam ask for inside information at the dozens of conferences or company meetings they attended.
I've never seen that, no, Schutte said.
The government says Rajaratnam cheated to gain an unfair advantage in the stock market between 2003 and March 2009, reaping an illicit $63.8 million on tips from highly-placed corporate insiders.
His tipsters, prosecutors contend, included a former Goldman director and insiders with information about technology companies such as Google Inc and chipmaker Advanced Micro Devices Inc.
The defense began its case by introducing two witnesses in an effort to undermine the credibility of a government witness, former Galleon employee Adam Smith, who pleaded guilty in January in the hopes of receiving a lighter sentence.
Schutte was called to create doubt about prosecution evidence that Rajaratnam relied on inside information. Schutte will be cross-examined by prosecutors on Tuesday.
Through Schutte, the defense also wanted to tell jurors that Rajaratnam's trades were guided by a so-called mosaic theory -- a vast collection of research, analysis and public information, not leaked corporate secrets.
We had a very disciplined research process. We were very methodical, Schutte testified.
He said Galleon's 20 portfolio managers and 35 research analysts received volumes of information daily through emails, Instant Messaging, an internal chat room, trade publications, news wires, conferences and regulatory filings.
At an 8:30 daily morning meeting there was standing-room only in a large conference room with sometimes 60 attendees.
Late-comers were fined $25 by Rajaratnam, he said. At the meetings, he knew what questions to ask. He was always prepared. It was impressive to watch.
Schutte said employees generally worked at desks with two screens and added jokingly or three if it was their birthday.
Rajaratnam, some jurors and spectators in the crowded courtroom laughed when Schutte said Rajaratnam had a lot of birthdays, no offense ... I think he had six screens.
Rajaratnam has appeared in court every day of the trial on his own, but the jury heard something about his family life on Monday.
He would come in at 7.45. He liked to have breakfast with his children so he came in a bit later than most, Schutte said.
Schutte said he oversaw the winding down of Galleon after Rajaratnam's arrest in October 2009. The hedge fund had about $6.5 billion under management at its peak in early 2008 and all of its investors were repaid, Schutte testified.
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 Basil Katz; editing by Dave Zimmerman and Andre Grenon)