By Ann Woolner
Bloomberg News columnist
Billed as a knock-down, drag-out courtroom battle, the Raj Rajaratnam insider trading trial opened in Manhattan this week with so many onlookers jockeying for seats that it took two overflow rooms with closed-circuit TV to accommodate them. The high-stakes prosecution of a hedge-fund billionaire began with all the anticipated drama.
"Greed and corruption," were the opening words of Assistant U.S. Attorney Jonathan Streeter as he began to describe the case.
In a fast-moving hour, he took jurors on a tour of upcoming trial highlights. He gave them tantalizing tidbits of tapped phone conversations and described multimillion-dollar buy and sell orders. One order in 2008, for $43 million in Goldman Sachs stock, was too big for Wall Street to fill with only minutes left until the closing bell, Streeter said.
Rajaratnam had been in a hurry to buy Goldman, and lots of it, because at 3:55 p.m., the company's director Rajat K. Gupta had placed a call to him, moments after learning that Warren Buffett would be investing $5 billion in the then-troubled firm, the prosecutor said.
So when it came time for lead defense lawyer John M. Dowd to face jurors, he offered the combative tone you'd expect.
The feds are wrong about Rajaratnam because they "believed the word of unbelievable people." Dowd called witnesses against Rajaratnam liars and fraudsters out to save their own skins.
Dense Defense
But in foreshadowing the defense case, Dowd gave jurors a painful sampling of the tedium that lay ahead for them. Not satisfied with laying out broad themes spiced with a few choice highlights, he delved into excruciating detail to give reasons for Rajaratnam's trades. He explained what surely must have been every suspicious trade the case covers. There are many.
As mid-afternoon stretched toward 5 p.m., Dowd was still reading his statement, glancing up to make a stab at occasional eye contact with jurors. The only relief came from memos the defense displayed on monitors, but they proved boring and dense.
Jurors began fidgeting. One gazed upward to get a look at the ceiling. Another adjusted his shirt cuff. There was a slouch here, a squirm there. I expected to see some of them take off their eyeglasses and begin eating them just for a diversion.
Finally, after 96 minutes, Dowd was done. He thanked jurors for indulging him.
Was this a miscalculation by one of the country's leading white-collar defense lawyers? Or was it part of a strategy to bore jurors into reasonable doubt?
Don't laugh. If the defense can drag out regulatory filings, company conference calls, newspaper clips and who knows what to show so-called "insider knowledge" was actually public knowledge, Rajaratnam wins and should.
Reason For Trade
And if all turns into an impenetrable haze, so be it. Should jurors see an indecipherable glob of financial mumbo- jumbo, the defense will call it a mosaic of legitimate information that Rajaratnam amassed to inform his trades.
And maybe it is exactly that. We'll see.
On the Goldman trade, Dowd told jurors Rajaratnam had just learned, legitimately, that there was enough support in Congress for a Wall Street bailout so he quickly bought millions of bank shares, including Goldman.
The jury will have to decide whether that outweighs the Gupta link. If the opening is any indication, the defense will offer myriad explanations for the suspicious trades, enough to intimidate even a savvy investor.
And this is a jury with few investors, savvy or otherwise. Ten of the 12 jurors (and five of six alternates) have never bought stocks, bonds or funds, if they accurately answered that question during the selection process.
Ways Of Street
As for education, it's a mixed picture. Two jurors never finished high school. Four have bachelor's degrees, one a master's. Except for a juror who wasn't asked and didn't answer, the others reported two or three years of college.
The prosecution's job is to educate them in the arcane world of Wall Street, down to the very complicated question of when an insider's tip is legal.
Streeter began the lessons at opening with some quick primers on Wall Street, hedge funds and insider trading.
But in his questions to witnesses, he's going to have to keep it up.
Sometimes, the evidence will make Streeter's job easy. This happened yesterday when he began playing some of the phone conversations the feds tapped into.
In one, Rajaratnam is talking with an investor friend about a company's pending acquisition.
"We know because one of our guys is on the board," Rajaratnam is heard saying. It doesn't take a degree in securities law or a fat portfolio to figure out what that means.
Dowd is going to have a lot of explaining to do, and it won't be as entertaining as what Streeter has to offer.
But then, it isn't meant to be.