Defense to call ex-Rajaratnam fund COO to testify

Markets Reuters

By Basil Katz

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NEW YORK (Reuters) - Raj Rajaratnam's lawyers plan to call five witnesses to testify for the defense at his insider trading trial, including a former top executive at his hedge fund.

When the Manhattan federal court trial enters its sixth week on Monday, defense attorneys will begin their leg of the case. Rajaratnam lawyer Terence Lynam told the judge on Friday he planned to call two former Galleon employees, including its one-time chief operating officer Rick Schutte.

Schutte is expected to back the defense's argument that research, analysis and market speculation, not material company secrets, guided trading at Galleon, which had $7 billion under management at its peak. Former Galleon analyst Stephen Granoff may also take the witness stand.

In what prosecutors have called the biggest probe of insider trading at hedge funds on record, Sri Lankan-born Rajaratnam, 53, is charged with 14 counts of conspiracy and securities fraud.

Prosecutors have played numerous wiretapped recordings of Rajaratnam's phone calls with high-placed friends in corporate America. The government contends he made more than $50 million in illicit trading profits between 2003 and March 2009.

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The trial, which began in early March, was expected to last up to two months. But defense attorneys said they might take only two days to present their witnesses, resting their case as early as Tuesday.

A looming U.S. government shutdown was not expected to have an impact on the Rajaratnam court proceedings. The impasse was not mentioned at a court hearing on the case on Friday.

At the hearing, where no jurors were present, Rajaratnam's lawyers told U.S. District Judge Richard Holwell they first planned to call two witnesses to refute earlier testimony from former Galleon employee and government cooperator Adam Smith.

Hedge fund owner John Pernell and lawyer Robert Hotz will be called to the stand to contradict what former Smith told jurors, Lynam said. Smith, who pleaded guilty to securities fraud and conspiracy in January, testified that he supplied Rajaratnam with inside stock tips from a friend who worked as an investment banker.

Hotz is a partner at Rajaratnam defense law firm Akin Gump Strauss Hauer & Feld LLP. Pernell owns Polaris Investment Partners Inc.

Prosecutors said they would file papers later on Friday asking the judge not to let the two men testify.

The judge on Friday also allowed defense expert Gregg Jarrell, a professor at the University of Rochester's William Simon School of Business, to testify next week. Prosecutors had objected to parts of his proposed testimony.

Rajaratnam, who faces up to 20 years in prison if convicted, has sat silently amid his lawyers at the trial as prosecutors brought on a parade of witnesses and played recordings of his telephone conversations.

Asked by the judge whether Rajaratnam would take the stand, defense lawyer John Dowd said he would tell the prosecutors "in a timely way."

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184. (Reporting by Basil Katz, editing by Martha Graybow, Gary Hill)