Rajaratnam's trades based on available info: defence witness

53-year-old Rajaratnam is on trial in the US for alleged insider trading. He is accused of gaining more than USD 63 million from insider tips.

Gregg A Jarrell, a professor of finance and economics at the University of Rochester, produced evidence to show that the content of the alleged tips that the defendant received was already available in the public domain.

For instance, Jarrell showed that public information indicated that stocks of Goldman Sachs Inc were likely to decline because the firm was being hit by the financial crisis in 2008.

"The theme that keeps getting reported here is that things are getting worse," he said, referring to press and analyst reports from 2008. The prosecution has alleged that Sri Lanka-born Rajaratnam sold the firm's stock based on an alleged tip by Rajiv Gupta, a former director at the investment bank, about the firm's earnings in the fourth quarter of 2008.

Lloyd Blankfein, the CEO of Goldman Sachs, has testified that Gupta violated the firm's confidentiality policy. The prosecution has also alleged that Rajaratnam got an insider tip from Danielle Chiesi, a hedge fund trader, that Akamai Technologies was going to "guide down," prompting the defendant to sell the company's stock.

Jarrell, however, said there were plenty of other indicators that Akamai was in trouble including it being listed on the Sell List of Goldman Sachs, which means that a company is in big trouble. "This is really bad," he said.

Jarrell showed slides, press clippings, and analyst reports to counter several insider trading allegations made by prosecution regarding Rajaratnam's trading patterns.

During the cross examination, Manhattan Assistant US Attorney Jonathan Streeter said there was plenty of public information that was contrary to the alleged tips.

Jarrell, who previously served as the Securities and Exchange Commission's chief economist, replied that it was his job to find public information that was similar to the alleged tips, and he could not say what Rajaratnam was thinking when buying and selling stock.

"I'm not going to waste the time of the jury with all that information in the market," said Jarrell.

"You're asking me to read the man's mind," he added, when Streeter pushed him on whether it was more likely that Rajaratnam trades on Hilton Hotel stocks were based on insider information that the company was bought by Blackstone Group LP.

In March, the prosecution played secretly recorded phone conversations between Rajaratnam and his alleged sources talking about confidential information.

Two Indian-Americans – Anil Kumar, a former director McKinsey & Co and Rajiv Goel, a former executive at Intel Inc, - have pleaded guilty and testified against their old classmate from the Wharton School of the University of Pennsylvania.

Rajaratnam, who is charged with 14 counts of conspiracy and securities fraud, denies wrongdoing. If found guilty, he faces up to 20 years in prison. Out of 26 people arrested in the case, 19 have pleaded guilty.

Streeter also made the point that an investor could trade both on a combination of public information as well as confidential information that he was getting from an insider.

"Having 75 per cent certainty is better than having 50-50," asked Streeter. "It depends on what the 25 per cent does to me," replied Jarrell.

"If you have tomorrow's business news today, that is a great advantage," asked Streeter. "If you have certainty in a world of uncertainty that is an advantage," Jarrell replied.

In one instance, when Streeter and Jarrell were arguing about the edits the government had made to Jarrell's slides, Judge Richard Holwell intervened. "Alright, let's move on," he said. Both sides are expected to make closing arguments next week.