Friday, August 5, 2011

Rajaratnam Defense Strategy Questioned

Friday, August 5, 2011

Summing up his defense of Galleon Group founder Raj Rajaratnam, attorney John Dowd tried to channel the late Johnnie Cochran, telling jurors: "If it's public, you must acquit."

The rhyme didn't work; the defense didn't either. While Mr. Cochran helped O.J. Simpson beat murder charges with the famous line, "If it doesn't fit, you must acquit," jurors convicted Mr. Rajaratnam on all 14 counts of securities fraud and conspiracy in one of the biggest insider-trading trials ever.

Mr. Dowd's closing argument was one of many components of Mr. Rajaratnam's ultimately failed defense strategy. Many moves by the defense team and Mr. Rajaratnam are now likely to be evaluated, including the selection of a largely working-class jury in a case involving a billionaire, his choice not to take the stand, Mr. Dowd's often-combative style, and the overarching attempt to convince jurors that the hedge-fund titan only relied on publicly available information in the face of recordings to the contrary.

WSJ's Kelly Evans and David Weidner discuss former hedge fund titan Raj Rajaratnam and his upcoming sentencing following his conviction on all insider trading and fraud charges. (Photo: EMMANUEL DUNAND/AFP/Getty Images)

Though a defendant in any trial has the final say on major strategy questions, he or she normally defers to counsel. "He has always taken my advice," Mr. Dowd told the judge after Wednesday's verdict, speaking of Mr. Rajaratnam. Mr. Dowd declined to comment for this article.

Both Mr. Dowd and Mr. Rajaratnam, 53 years old, are known for a willingness to fight, but the odds were stacked against them when a federal judge decided months before the trial to allow wiretaps of Mr. Rajaratnam's phone conversations into evidence. Mr. Dowd said after the verdict on Wednesday that he will appeal U.S. District Judge Richard Holwell's ruling on the wiretaps in hopes of overturning the verdict.


Lead defense attorney John Dowd, left, with defendant Raj Rajaratnam, center, and defense attorney Terence Lynam after Wednesday's verdict.

But from the start of the trial to its last days, the defense gave up certain alternatives in charting its strategy. Mr. Rajaratnam rejected outreach by the government about the possibility of negotiating a plea two months before proceedings began, according to people familiar with the matter. Often, defendants can reduce their sentences by pleading guilty before trial to fewer counts or lesser charges. It isn't known what prosecutors might have offered Mr. Rajaratnam or how Mr. Dowd advised him.

While jurors haven't publicly discussed their feelings about Mr. Rajaratnam, defense lawyers are often concerned a panel may not relate to a defendant. In this case, the eight women and four men judging him included educators, a nurse and a customer-service representative, even though the jury pool contained candidates whose backgrounds put them closer to the world Mr. Rajaratnam inhabited.

Another factor in the defense was the style of Mr. Dowd, a 69-year-old former military lawyer who aggressively questionedgovernment witnesses in front of the jury and accused prosecutors of using threats to coerce false testimony. Mr. Dowd tried to discredit Anil Kumar—a former McKinsey & Co. consultant who testified that he gave Mr. Rajaratnam inside information—by labeling him, in his closing argument, "the worst liar ever to take the stand in any courtroom in this building."

Kenneth Herzinger, a securities lawyer at Orrick, Herrington & Sutcliffe LLP, said lawyers have to avoid offending the jury by being "overly aggressive" with a witness. "If they're a very sympathetic witness, you might end up hurting the case more than you help," Mr. Herzinger said. "Juries are people, too."

At least one attorney praised the defense's approach. "It was a very difficult case for the defense, and I think they did a fine job," said Steve Tyrrell, a white-collar-crime lawyer at Weil, Gotshal & Manges. "They went after the government witnesses hard.…They did a good job of calling the credibility of the witnesses into question."

One setback for the defense came after prosecutors questioned defense witness Rick Schutte, Galleon's former president for U.S. operations, about $25 million Mr. Rajaratnam invested before the trial in Mr. Schutte's hedge fund. The financial relationship wasn't disclosed by the defense.

Will Raj Rajaratnam's guilty verdict affect the hedge fund managers? In an interview with WSJ's Shira Ovide, White & Case partner Greg Little weighs in on the legal implications of the ruling in the Galleon insider trading case and what it could mean for the hedge fund industry.

"His credibility suffers significantly when that type of testimony comes out. One option for the defense is to raise that as a preemptive strike," said Michael Weinstein, chairman of the white-collar practice at Cole, Schotz, Meisel, Forman & Leonard PA. Mr. Dowd said as part of his closing arguments that prosecutors were trying to "smear an honest witness."

Perhaps the most momentous decision was Mr. Rajaratnam's choice not to testify, after having told associates before his trial that he wanted to take the stand. Lawyers say it is very risky for a defendant to testify, because he might slip up or alienate the jury—but that it can sometimes be necessary as a last resort. Mr. Dowd, speaking privately during the trial, said it was the most difficult of decisions.

Amy J. Greer, a lawyer at Reed Smith, said juries want to hear from defendants, particularly in a case such as Mr. Rajaratnam's, where they had heard him repeatedly on secretly recorded wiretaps. "I have to think it could have made a difference here," she said.

The overriding defense strategy of trying to convince jurors that Mr. Rajaratnam relied on "a mosaic" of publicly available stock research, not inside tips, was what Mr. Dowd meant to impart with his catch phrase during closing arguments. But that couldn't overcome what jurors heard: recorded telephone conversations in which Mr. Rajaratnam received confidential information from corporate insiders, lawyers said.

"The wiretaps suggest and make it appear that he obtained information no one else had," said Mr. Weinstein. "It seems to undermine the theory that the information was in the public domain."

Mr. Rajaratnam is estimated to have paid as much as $40 million for his defense, according to people familiar with the matter and some lawyers not affiliated with the case, about two-thirds of the amount prosecutors said Galleon made from the insider trading addressed in the charges.

By comparison, Conrad Black, the newspaper magnate, has spent about $30 million battling fraud charges at trial, in appeals that have overturned some of his convictions, and in related civil suits, according to one of his lawyers, Marc D. Powers, of Baker & Hostetler LLP. "It's an expensive thing to get in the cross hairs of the government," said Mr. Powers.

Write to Michael Rothfeld at and Chad Bray at

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