Ex-Galleon trader hunted for insider information

Thursday, 31 March 2011 00:59 - - {{hitsCtrl.values.hits}}

New York (IANS) After two Indian American witnesses, a former Galleon Group employee has admitted that he traded on insider information at the hedge fund firm founded by Sri Lankan born Raj Rajaratnam.

Testifying in the alleged $45 million insider trading trial of Rajaratnam, Adam Smith told a New York court Tuesday that Galleon ‘used insider tips as an ‘edge’ in a strategy to make money’ when company revenue details differed from expectations on Wall Street.

Describing the pressure to get that ‘edge’, former portfolio manager Smith said: ‘Getting an edge is the key component to arbitraging consensus.’

‘Research is sort of doing your homework ahead of time,’ he said. ‘Getting the number is more like cheating on a test ... I knew the answer ahead of time.’

Smith’s task was ‘getting the number’. That is, getting a hold of concrete revenue figures before they were publicly released by the company. He said he was able to garner those numbers from insiders at Intel and another chipmaker Intersil.

Smith also revealed that even after he left Galleon, Raj’s arrest did not deter his regular methods, and he continued to trade on inside information.

Smith, who has already pleaded guilty to securities law violations and wore a wire to help the prosecution, said he formed a relationship with Intel executive Michael Tomlinson through an expert networking firm.

Tomlinson allegedly provided Smith information about the company’s revenues through a relative who worked in Intel’s finance department.

Smith testified that Rajaratnam approved his suggestion that they hire Tomlinson directly as a consultant, rather than work through the networking firm.

Smith also took advantage of his friendship with former Morgan Stanley banker Kemal Ahmed to get information about plans for an upcoming merger between Integrated Circuit Systems and Integrated Devices Technolog Rajaratnam, who was arrested in October 2009 in the biggest US insider trading case, has denied any wrongdoing.

Nineteen people, including two Indian Americans, former McKinsey director Anil Kumar and former Intel executive Rajiv Goel have pleaded guilty, and many are cooperating with prosecutors.

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