When testimony gets confusing, lawyers risk losing the jury. Raj Rajaratnam’s legal team may use an expert network of its own to interpret the whirl of complicated information.
When Goldman Sachs chief executive Lloyd Blankfein testified as part of the insider trading case against the hedge fund manager Raj Rajaratnam, the banker provided glimpses into the world of the Wall Street power house that were at times riveting, and at times so full of technical detail that the descriptions were too hard for a layman to understand.
The government questioned Blankfein about the fact that Goldman Sachs (GS) stood to post a quarterly earnings loss in October 2008, and about the fact that this knowledge had been given in confidence to board members ahead of a public announcement. Prosecutor Andrew Michaelson asked Blankfein about how and where the bank was losing money. The conversation took a turn for the jargon-y and threatened to lose the jury.
“Profit and losses from fluctuations in value,” “inventories of positions,” and “assets being accumulated” were some of the phrases bandied about as Blankfein dug into the company’s market making and trading operations. At the behest of prosecutors, he tried not only to explain the source of the quarterly loss, but also the differences between market making and proprietary trading. It was an awkward conversation, and one full of technicalities that would only make sense to avid readers of the business pages.
Complex lines of question and answer could create challenges for the government, whose goal is to keep the case focused on two key issues — that Raj Rajaratnam obtained non-public information to make trading decisions, and that he knew what he was doing was wrong.
But complex and confusing descriptions of numbers and processes could work to the benefit of the defense. Rajaratnam’s lawyers need only to show the slightest possibility that their client is not guilty. They do not need to prove Rajaratnam’s innocence. The defense, which has yet to present its side, may call expert witnesses that can use data to shoot holes in the prosecution’s case.
“The point of using an expert is to have someone take complicated materials and explain them in a way that the lay person can understand,” says Stuart Slotnick, a defense attorney and managing partner in the New York City office of Buchanan Ingersoll & Rooney. “In a complicated financial case, it’s very common to use forensic accounting experts to explain what is going on.”
The Rajaratnam trial is going to include an overwhelming amount of data that most people don’t encounter day-to-day, if ever, including trading records, stock moves, and valuations. To some extent, both sides must work with this array of records and numbers to make their cases.
We know from court documents that Rajaratnam’s legal team may have expert witnesses. We also know that the government “has no expert for its direct case, has no rebuttal expert waiting in the wings, and has not even consulted with an expert,” according to the March 3 order written by judge Richard Holwell, which compels the defense attorneys to name their experts.
Tapes vs. experts
The trial’s outcome will depend, in part, on whose interpretation of the data the jury believes — that of cooperating witnesses, who themselves are guilty of crimes, or that of outside experts, who are being paid by the defense.
“A very good forensic expert witness can make or break a case,” says Slotnick. “We’ve won cases based on expert witnesses who were likeable, credible and put in hundreds of hours of preparation. They knew the documents cold and were able to simplify very complicated materials.”
The defense will likely call upon forensic accountants or economists to show that any alleged inside information was already in the public domain, that the so-called tips were baked into the stock price before Rajaratnam made his trades, and that Rajaratnam didn’t enjoy any outsized benefit from making the trades when he did. Dowd’s witnesses could make compelling arguments that prosecutors are misinterpreting a complicated tangle of events, numbers, and data points.
So why hasn’t the government lined up experts, too? The government may not have the budget to hire such witnesses. Even though this is the highest profile insider trading case since the Martha Stewart trial, and the largest alleged insider trading ring since Ivan Boesky, the government still has to work on a shoestring budget, says Edward Novak, a white-collar defense attorney and partner at Polsinelli Shughart.
Government prosecutors seem confident that wiretapped phone conversations and testimony from cooperating witnesses will be enough to nail Raj Rajaratnam for at least some of the 14 counts of insider trading and conspiracy that he faces. Lawyers who have observed the first few weeks of the trial say that they’re impressed with how damning some of the wiretapped conversations seem to be.
“If many witnesses testify against Rajaratnam and the testimony is consistent, the government has a case,” says Novak. Nineteen people have pleaded guilty in the case, many of whom are testifying on behalf of the government.
Novak adds: “If many cooperating witnesses can all explain what they said to Rajaratnam in a believable way, say that Rajaratnam took action after those conversations, and then prove that they got calls back from him saying that they were heroes, then prosecutors don’t need an expert to conclude that there has been a violation of law.”
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