Cover story

Rajaratnam: Wrongdoers are often nailed for the cover-up, not the crime. That’s what happened, say, to Martha Stewart. It’s different with Raj Rajaratnam, the Galleon Group hedge fund boss who is on trial in New York for alleged insider trading. But, prosecutors did argue that Rajaratnam tried to hide his actions. As the jury takes the case, the credibility of those claims could help swing the verdict.

In closing arguments last week, the defense emphasised its contention that virtually all the information Rajaratnam traded on was public, so his trading wasn’t illegal. Prosecutors topped off their case to the contrary, with evidence that the Galleon founder faked emails, warned colleagues to keep “radio silence” and otherwise tried to ensure any suspicious regulators would be thrown off the scent.

Of course, if the charge is insider trading, a cover-up isn’t, on its own, enough to find illegality. The Securities and Exchange Commission was reminded of that last June when a federal judge dismissed its civil insider trading case against a hedge fund manager and a Deutsche Bank bond salesman. The US regulator essentially argued the two men must have traded inside information because they stopped using government-tapped land lines and talked on cell phones instead. But, the judge ruled the suspects’ dodgy moves couldn’t overcome the lack of evidence that they talked about and traded on material non-public information.

In Rajaratnam’s case, the prosecution presented plenty of that kind of detail, making a persuasive case with documents and wiretaps. However, the purported cover-up matters, too. If the jury members buy the prosecution’s story that Rajaratnam covered his tracks, it becomes much easier for them to conclude he was fully aware of what he was doing.

That may be partly why the hedge fund manager’s lawyer tried mightily to refute accusations of a cover-up. He explained that everything in the Galleon founder’s emails was true and that payments to corporate insiders were proper and above-board. The bit about “radio silence” was merely to keep competitors in the dark, he said.

Overall, though, the prosecution’s underlying case appeared strong enough to make the cover-up easy to believe. That doesn’t bode well for the embattled Rajaratnam. If the jury is minded to find him guilty, the belief that he tried to hide his actions will only make them more confident.