Insider-dealing trial listens to FBI phone-tap

The jurors who will decide the fate of hedge fund giant Raj Rajaratnam heard the voice of the Galleon founder for the first time yesterday on wiretapped recordings that prosecutors say reveal him receiving illegal insider share tips.

And they also heard testimony from one of his tipsters, a friend he met at business school who was paid $500,000 (£311,000) into a secret Swiss bank account in return for acting as a consultant to Galleon.

Anil Kumar, who attended Wharton Business School with Mr Rajaratnam and went on to be an executive at the corporate advisory firm McKinsey, did not make eye contact with his old friend as he took the stand in a Manhattan courtroom.

Mr Rajaratnam is alleged to have pulled him aside at a 2003 charity event and offered to pay him to call in to Galleon every few weeks.

Kumar said that when he told Mr Rajaratnam taking outside work was against McKinsey rules, he replied: "If you could get someone on the outside to accept it, then McKinsey doesn't have to know about it."

Kumar pleaded guilty last year to two fraud charges. Prosecutors say the Swiss money was brought back into the US via an account at Galleon in the name of Kumar's housekeeper.

US authorities listened in on Mr Rajaratnam's conversations for more than eight months in 2008, including several between him and Kumar in which they discussed McKinsey clients.

In one played to the jury yesterday, the pair discussed a soon-to-be announced fundraising deal involving the chipmaker Advanced Micro Devices.

"Hi. So yesterday they agreed, at least they've shaken hands and they've said they are going ahead with the deal," Kumar said on 15 August 2008. The call referred to an impending investment in AMD by Abu Dhabi's sovereign wealth fund.

Mr Rajaratnam is heard asking: "Right. What's the deal? How much are they investing?"

Kumar says: "There will be such a boost from this announcement, it'll be fine... you can go ahead and buy."

Mr Rajaratnam faces up to 20 years in jail if convicted on charges of insider trading and securities fraud. The Sri Lankan-born investor is alleged to have made $45m in profit from illegal trades. His arrest in October 2009 sent shock- waves through the financial community, and signalled US authorities' determination to root out and punish insider trading across the industry.

Nineteen people in Galleon's alleged network of tipsters and traders have already pleaded guilty. Mr Rajaratnam says he is innocent, and that Galleon's trades were based on a "mosaic" of information from legitimate sources.

The trial is expected to last around two months. In opening statements on Wednesday, Assistant US Attorney Jonathan Streeter claimed that Mr Rajaratnam used his corrupt network of insiders to discover "tomorrow's business news today". John Dowd, for the defence, said that many of the prosecution witnesses were people under threat of long jail terms, who were testifying against Mr Rajaratnam "to save their own skins".

Mr Dowd said: "There is a real-world context in which law-abiding professionals discuss stocks and trades. In the real world people are discussing stocks. It is legal and it is good for all of us."