Galleon Insider-Trading Defendant Pleads Guilty

Wednesday, 19 Jan 2011 02:42 PM

 

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A co-defendant of hedge fund operator Raj Rajaratnam pleaded guilty Wednesday to federal charges in a case that has led to an ever-widening probe of insider trading within the securities industry.

Danielle Chiesi pleaded guilty in Manhattan to three counts of conspiracy to commit securities fraud. She was charged along with Rajaratnam in an insider trading scheme that prosecutors say generated more than $50 million in illegal profits.

Rajaratnam, who founded the Galleon Group of hedge funds, has said any trades he made were based on publicly available information. He is free on $100 million bail.

Chiesi is the 16th person to plead guilty in the case. Most are cooperating with prosecutors.

In the wider probe spurred by the case, authorities are targeting those in the securities industry who pass along secrets gleaned from employees at public companies as research.

Prosecutors say the Rajaratnam case marked the first time wiretaps were used extensively in an insider trading case. Since the first arrests in fall 2009, U.S. Attorney Preet Bharara has spoken several times about the need to curb insider trading on Wall Street through new law enforcement techniques.

Chiesi, 45, was considered by authorities as a central character in the insider trading scheme when she worked for New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc. that had assets worth about $1 billion under management.

A prosecutor said Chiesi's crimes were carried out during insider trading. Each charge to which she pleaded guilty carries a potential penalty of five years in prison, with a total maximum of 15 years. Sentencing was set for May 13.

Charges originally filed against her carried a potential prison term of 155 years.

Former IBM executive Robert Moffat admitted that his romantic feelings for Chiesi clouded his judgment before he pleaded guilty and was sentenced to six months in prison.

His lawyers admitted prior to his sentencing in September that Moffat was motivated by a desire to impress Chiesi, with whom he had an affair. They said she "played" him by using their intimate relationship to get confidential information.

In transcripts of telephone calls between Chiesi and Rajaratnam, they could be heard talking about Moffat as if they controlled him.

A government wiretap of a Sept. 26, 2008, phone conversation caught Chiesi and Rajaratnam discussing whether Moffat should move from IBM to a different technology company to aid the scheme, according to court papers.

"Put him in some company where we can trade well," Rajaratnam was quoted in the court papers as saying.

The papers said Chiesi replied: "I know, I know. I'm thinking that too. Or just keep him at IBM, you know, because this guy is giving me more information. ... I'd like to keep him at IBM right now because that's a very powerful place for him. For us, too."

According to the court papers, Rajaratnam replied: "Only if he becomes CEO."

Chiesi was quoted as replying: "Well, not really. I mean, come on. ... you know, we nailed it."

The criminal complaints in the case also captured what authorities said were efforts by the defendants to hide their conversations from authorities.

In one conversation, Chiesi was heard telling Rajaratnam that she was "glad that we talk on a secure line, I appreciate that," to which Rajaratnam replied: "I never call you on my cell phone," the complaint said. It added that Chiesi said she was "nervous" about being investigated.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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