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Pair plead not guilty to Galleon insider trading charges

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Raj Rajaratnam, the owner and manager of the Galleon Group hedge fund that is at the center of two insider trading scams, and his compatriot, Danielle Chiesi, formerly of the New Castle Funds hedge fund, have both entered pleas of not guilty to US District Court Judge Richard Holwell.

The pair were arrested, along with others, on October 16 and were indicted on December 15 by grand juries for allegedly cultivating a network of insiders at a variety of tech and other companies and executing trades in the stock market that allowed them to benefit illegally from insider information.

The original set of arrests were based on wiretaps of cell phone conversations between Rajaratnam and Chiesi and four others who have been charged with feeding data to the pair. These include Robert Moffat, who used to run IBM's Systems and Technology Group but who has stepped down since the scandal erupted, as well as relatively minor executives at Intel and McKinsey & Co. A number of other individuals are cooperating witnesses in the case, which involved insider trades in Akamai, IBM, Sun Microsystems, PeopleSupport, Clearwire, Google, and AMD stock - among others - that allegedly generated $20.8m in ill gotten gains.

On November 5, Federal prosecutors widened their net, charging 14 more people with insider trading, and in these cases, a former Galleon Group employee, Zvi Goffer, is the hub of the information network that did illegal trades in shares of 3Com, Avaya, and Kronos in the tech field, among others, which gave the parties at least $11m in illegal profits.

According to a report in the Wall Street Journal, neither Rajaratnam nor Chiesi said anything in court but "not guilty" when asked by the judge to enter their pleas. But Chiesi's mother, Gloria Chiesi, did have something to say outside the courthouse after the arraignment. "My daughter is innocent and that is what you will be printing," said the elder Chiesi. "God borrowed my body and gave me this girl. She's my angel."

According to a report from Bloomberg, Judge Holwell is working with US District Judge Jed Rakoff, who is presiding over a separate case brought by the Securities and Exchange Commission against those involved in the alleged scam. Moffat, Rajiv Goel (of Intel), Anil Kumar (of McKinsey), and Mark Kurland (of New Castle) have yet to be charged, and according to the Bloomberg report, their lawyers are "in discussions with prosecutors about resolving their cases."

Moffat has specifically claimed to have not said anything material or non-public to Chiesi concerning AMD, IBM, or Sun. Goel and Kumar have invoked their fifth amendment right not to be a witness against themselves. Six others have already pleaded guilty to charges levied by the government in connection with the original insider trading scandal. The 14 others in the second insider trading ring have yet to be indicted.

US Attorney Joshua Klein said in the Journal report that discovery for the case would begin this week and asked for a trial date in June or July; the SEC case is set for August. John Dowd, Rajaratnam's lawyer, and Alan Kaufman, Chiesi's lawyer, both argued to the judge that they would need more time for discovery. Judge Holwell has set a bail hearing for Rajaratnam for January 8, who has asked for his bail to be lowered to $20m from $100m. ®

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