Rajiv Goel, a former Intel Corp. who pleaded guilty to insider trading with Raj Rajaratnam, testified that he told the Galleon co-founder Intel would invest $1 billion in a new wireless network company formed by Clearwire and Sprint Nextel Corp. Goel was a friend of Raj Rajaratnam’s and his former business school classmate.
The U.S. alleged that Raj passed the tip about Clearwire to Rengan in March 2008 so the two could execute trades on Goel’s tip. On March 25, 2008, six days after Goel and Raj spoke, the FBI recorded the brothers discussing a newspaper article describing the deal.
“It’s all over the Wall Street Journal,” Rengan told his brother at 8:22 p.m., according to the wiretapped recording played for jurors in Manhattan federal court. “They’re short on details, but they kind of say, you know, they’re looking to raise as much as $3 billion.”
“OK, sh-t,” Raj Rajaratnam replied. “But I think Clearwire’s share price is gonna rip tomorrow."
A day later, Clearwire’s price rose sharply in response to the article, prosecutors said. The U.S. said that Rengan made $101,000 trading on Clearwire in his own personal brokerage account, that he and his brother made more than $231,000 for a Galleon fund and that Raj took in more than $851,000 for a Galleon technology fund, according to prosecutors.
The government also described trading in AMD based on tips provided by Anil Kumar, then a director at McKinsey & Co., that the chipmaker was getting a multibillion-dollar investment from Mubadala Development Co. of Abu Dhabi. Kumar was also a friend of Raj Rajaratnam and had been a business school classmate of the fund manager.
“I just heard that ... AMD had a handshake with the ... Arabs to put in six billion dollars,” Raj Rajaratnam told his brother on an Aug. 15, 2008, call, which was cited by prosecutors in the indictment.
Later that day, Rengan Rajaratnam called his brother to tell him he had conferred with David Palecek, a former Stanford classmate who was in charge of semiconductors for McKinsey. Rengan Rajaratnam said he asked Palecek about buying AMD stock and the proposed deal.
Rengan later called his brother that day and told him Palecek had “spilled his beans” about the deal.
“He’s like, ‘Buy it, buy as much as you can as soon as you can,’” Rengan Rajaratnam told his brother on the call.
In a later conversation that was also recorded, Rengan told Raj that his former Stanford friend was “a little dirty” and that he was “definitely, you know, thinking about playing ball” with Galleon.
“‘He said my best ideas are inside information,’” Rengan quoted Palecek as telling him.
Palecek died in 2010 of a virulent staph infection, his lawyer, Catherine Redlich, said during Rajaratnam’s 2011 trial.
“What the tape does not reflect is that Mr. Palecek never agreed to ‘play ball’ with the Rajaratnams, never received money from them, and never agreed to put his wife on Galleon’s payroll,” Redlich said.
Prosecutors said that neither Rengan nor Raj Rajaratnam made any money on the AMD tip because of an overall decline in technology stocks, prosecutors said.