Business Day

Published: March 8, 2011

The Galleon Network

Prosecutors have called it the biggest insider-trading case in United States history. On Tuesday, Raj Rajaratnam goes on trial in the federal district court in Manhattan, accused of making $45 million trading on illegal information scoured from a network of sources that spanned Wall Street and corporate America. Mr. Rajaratnam is fighting the charges, 14 counts of securities fraud and conspiracy. The trial, expected to last six to eight weeks, will highlight an array of aggressive tactics the Justice Department has used in its long-running investigation into insider trading, including confidential informants, wiretapped phone conversations and possibly top executives as witnesses. Full coverage of the Galleon trial is on DealBook.

After fighting the charges for more than a year, Danielle Chiesi, a central figure in the government's case, in January pleaded guilty to charges of insider trading after the judge ruled that secretly recorded wiretaps could be used at trial. Ms. Chiesi has not been asked to testify in Mr. Rajaratnam's trial.

A Sri Lankan native, Raj Rajaratnam co-founded the Galleon Group hedge fund in 1997. At its peak, the New York fund managed about $7 billion in assets. Mr. Rajaratnam, 53, is free on $100 million bail as he fights the charges against him.

Rajat K. Gupta, a former director of Goldman Sachs and Procter & Gamble, was accused by the Securities and Exchange Commission last week of passing insider tips about those companies to Mr. Rajaratnam. Mr. Gupta's lawyer has called the accusations “totally baseless.”

Amil Kumar, a former McKinsey director, pleaded guilty in early 2010 to passing inside information to Mr. Rajaratnam in exchange for about $2 million.

In pleading guilty last year, Rajiv Goel admitted to passing inside information about his former employer, Intel, among other companies, to Mr. Rajaratnam out of friendship. Prosecutors said that had he not pleaded guilty, they were prepared to play recordings of the two Wharton School classmates from 2008.

Until January, the prosecution did not reveal the existence of Adam Smith, a former Galleon trader who pleaded guilty to giving inside information directly to Mr. Rajaratnam over a six-year period.

Another Galleon trader whose cooperation was only recently disclosed, Michael Cardillo, admitted to having received tips indirectly from Mr. Rajaratnam. Prosecutors have said Mr. Cardillo has evidence about Mr. Rajaratnam's trades based on insider information about Procter & Gamble.

One of the first defendants to plead guilty, Roomy Khan has been seen as a critical cooperating witness in the government's investigation into the Galleon Group hedge fund. Her testimony served as a basis for the government's request to use wiretaps.

By AZAM AHMED and GUILBERT GATES/THE NEW YORK TIMES