By Grant McCool
NEW YORK (Reuters) - Raj Rajaratnam demanded discipline at his Galleon hedge fund, fined late-comers to his morning meetings $25 and never asked any company for inside information, one of his former top lieutenants testified.
One-time Galleon chief operating officer Rick Schutte took the witness stand at Rajaratnam's insider trading trial on Monday as the defense presented its side of the case to New York jurors who have heard five weeks of prosecution evidence including FBI phone taps and witnesses.
Schutte, hired by Rajaratnam in June 2004 after spending 10 years at Goldman Sachs Group Inc as computer hardware and storage analyst, repeatedly used the word "discipline" to describe life at Galleon.
Speaking calmly, he called Sri Lankan-born Rajaratnam "very professional" and "educated" about the issues facing companies covered by Galleon funds for its investors.
The Galleon case is part of what prosecutors call the biggest probe of insider trading at hedge funds on record. Rajaratnam, 53, is charged with conspiracy and securities fraud and could be sentenced to up to 20 years in prison if convicted.
Schutte is one of five witnesses the defense says it will call to testify in Manhattan federal court over two days. The jury could hear closing statements later this week.
Asked by a defense lawyer, Michael Starr, whether he ever saw Rajaratnam ask for inside information at the dozens of conferences or company meetings they attended together, Schutte said: "I've never seen that, no."
The government says Rajaratnam cheated to gain an unfair advantage in the stock market between 2003 and March 2009, reaping an illicit $63.8 million on tips from highly-placed corporate insiders.
His tipsters, prosecutors contend, included a former Goldman director and insiders with information about technology companies such as Google Inc and chipmaker Advanced Micro Devices Inc.
The defense began its case by introducing two witnesses in an effort to undermine the credibility of a government witness, former Galleon employee Adam Smith, who pleaded guilty in January in the hopes of receiving a lighter sentence.
Schutte was called to create doubt about prosecution evidence that Rajaratnam relied on inside information. Schutte will be cross-examined by prosecutors on Tuesday.
Through Schutte, the defense also wanted to tell jurors that Rajaratnam's trades were guided by a so-called "mosaic theory" -- a vast collection of research, analysis and public information, not leaked corporate secrets.
"We had a very disciplined research process. We were very methodical," Schutte testified.
He said Galleon's 20 portfolio managers and 35 research analysts received "volumes" of information daily through emails, Instant Messaging, an internal chat room, trade publications, news wires, conferences and regulatory filings.
At an 8:30 daily morning meeting there was "standing-room only in a large conference room" with sometimes 60 attendees.
"Late-comers were fined $25" by Rajaratnam, he said. At the meetings, "he knew what questions to ask. He was always prepared. It was impressive to watch."
Schutte said employees generally worked at desks with two screens and added jokingly "or three if it was their birthday."
Rajaratnam, some jurors and spectators in the crowded courtroom laughed when Schutte said Rajaratnam "had a lot of birthdays, no offense ... I think he had six screens."
Rajaratnam has appeared in court every day of the trial on his own, but the jury heard something about his family life on Monday.
"He would come in at 7.45. He liked to have breakfast with his children so he came in a bit later than most," Schutte said.
The prosecution has played dozens of FBI phone taps and testimony of three cooperating witnesses as evidence the Galleon founder traded on tips provided by people who had fiduciary duty not to disclose it.
The defense team has not disclosed whether one-time billionaire Rajaratnam will testify to tell his side of the story. Schutte said he oversaw the winding down of Galleon after Rajaratnam's arrest in October 2009. The hedge fund had about $6.5 billion under management at its peak in early 2008 and all of its investors were repaid, Schutte testified.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.
(Reporting by Grant McCool; editing by Gary Crosse, Dave Zimmerman and Andre Grenon)