To the list of difficulties in prosecuting securities fraud, let’s just say people who’ve pleaded guilty to insider trading do not make the most credible witnesses.
Exhibit A: Michael Cardillo, a former-Galleon Group trader who is cooperating with the government’s case against Rajat Gupta, the one-time McKinsey & Co. CEO charged with feeding tips to Raj Rajaratnam. Mr. Cardillo has testified that Galleon portfolio manager R.K. Rajaratnam bragged that brother Raj had an inside source at Procter & Gamble, where Mr. Gupta was once a board director. On cross examination, defense attorney Gary Naftalis implied that Galleon employees tended to exaggerate the quality of their inside info. According to The New York Times:
Mr. Cardillo said he once witnessed R.K. Rajaratnam, who had previously worked at Kraft, tell his brother that Irene Rosenfeld, Kraft’s chief executive, would give him advance word if the company was going to buy Cadbury.
The deal that ultimately happened, but Mr. Cardillo testified that he was skeptical that R.K. Rajaratnam would ever get such information from Ms. Rosenfeld before an announcement.
Mr. Naftalis asked Mr. Cardillo about a recommendation by Mike Fisherman, a former Galleon colleague, to bet that shares of the women’s retailer Chico’s would fall. When pressed by his colleagues for his reasons for shorting the stock, Mr. Fisherman said that he had a tip from Chico’s chief financial officer, according to Mr. Naftalis. Mr. Fisherman later told Mr. Cardillo that he fabricated his inside source at Chico’s, Mr. Naftalis suggested.
[World Economic Forum/Photo by Michael Wuertenberg]