On June 10, a New York federal judge barred the government from introducing evidence of defendant Rajarengan “Rengan” Rajaratnam’s trading activities in Akamai Technologies, Inc. Prosecutors argued that the defendant had traded on inside information provided by his brother Raj Rajaratnam, revealing that Akamai was planning to lower its revenue guidance during an upcoming conference call. However, Judge Naomi Reice Buchwald found that while it was clear that Raj Rajaratnam possessed and traded on the Akamai inside information, the government’s theory that the defendant did so as well was based on circumstantial and speculative evidence. The government relied upon the fact that the defendant amassed a short position of 270,000 Akamai shares in the days leading up to the conference call, suggesting that it reflected his knowledge of the inside information. The government also pointed to an instant message exchange and a recorded telephone call, both from the day of the conference, in which the defendant thanked his brother for something. 

However, Judge Buchwald found that the defendant offered concrete facts, which cast doubt on the government’s assertions. For example, the defendant covered over one-third of his short position before the guidance was issued. “It is difficult to explain why someone who knew that Akamai would be issuing negative guidance would cover over one-third of his short position right before that guidance was issued,” Judge Buchwald stated in a written order. Judge Buchwald also noted that the cover stands in “stark contrast” to the inaction of his brother Raj Rajaratnam, who did not begin to cover his short position of 600,000 shares until after the negative guidance was issued. Further, in the days leading up to Akamai’s earnings announcement other sources of information from a Galleon analyst, as well as a research report from Goldman Sachs & Co., expressed negative views of Akamai and a recommendation to sell the stock.

Based on this evidence, Judge Buchwald concluded that “[c]ritically, the government has not identified a single communication which suggests that defendant knew that Akamai would issue negative guidance.”  

The trial is scheduled to begin on June 17. 

U.S. v. Rajaratnam, Case No. 1:13-cr-00211 (S.D.N.Y. June 10, 2014).