Editor’s note: The hedge fund insider trading case that ensnared former IBM executive Robbert Moffat is coming to a close in New York. Moffat has already pleaded guilty for his role. The defense presented its closing argument Thursday.

The lawyer for Galleon Group LLC co-founder Raj Rajaratnam accused U.S. prosecutors of living in a “make-believe” and “imaginary world” where publicly available information about pending deals “didn’t exist.”

John Dowd, in the second day of closing arguments at Rajaratnam’s insider-trading trial, yesterday took jurors in Manhattan federal court through weeks of evidence to show that his client wasn’t guilty of conspiracy or securities fraud. His recurring theme was that information the government claimed was secret was actually public knowledge.

“It was public,” Dowd said repeatedly through an almost 5 1/2-hour summation. “You must acquit.”

Dowd, for instance, said Rajaratnam traded on information about a pending takeover of ATI Technologies Inc. by Advanced Micro Devices Inc. (AMD) because Hector Ruiz, the chief executive officer of AMD at the time, had told Wall Street analysts about it. Prosecutors say Rajaratnam was tipped by Anil Kumar, a former partner at McKinsey & Co., where Sunnyvale, California- based AMD was a client.

“Word had gotten around,” Dowd said. “Hector was talking about it.”

Dowd’s summation came in the seventh week of a trial that might send Rajaratnam, 53, to prison for 20 years in the biggest U.S. crackdown on insider trading at hedge funds. Rajaratnam is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge-fund traders about a dozen stocks, including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC), Clearwire Corp. and Akamai Technologies Inc.

‘Free Ride’

Unlike the April 20 summation by Assistant U.S. Attorney Reed Brodsky, who sometimes roamed the courtroom while arguing in an impassioned tone, Dowd was more deliberate as he stood at a podium reading a script. He was no less zealous.

Early on, he attacked the government’s claim that wiretaps of conversations between Kumar and Rajaratnam showed Kumar tipping Rajaratnam about upcoming job cuts at EBay Inc. Dowd said the news had been widely reported before that in the media.

“This is a perfect example of why you can’t listen to wiretaps in a vacuum,” Dowd said. “If Kumar couldn’t find the size of the layoffs, he hadn’t read the newspaper.”

Dowd assailed Kumar and ex-Galleon trader Adam Smith as liars who got a “free ride” from prosecutors in return for testimony implicating Rajaratnam.

‘Worst Liar’

Kumar lied to conceal his tax crimes and Smith fabricated testimony so he wouldn’t be sent to prison for 25 years, Dowd said. Of former Intel executive Rajiv Goel, another government witness who pleaded guilty and cooperated, Dowd said he was “the worst liar to ever take the stand in any courtroom in this building.”

By the end of his argument, Dowd had taken jurors through allegations that Rajaratnam got tips on about 20 stocks from eight insiders, traders or others. He said that information was either public or not material, that Galleon research backed Rajaratnam’s trades or that jurors shouldn’t convict him because government witnesses didn’t recall what they told Rajaratnam.

That Rajaratnam lost millions of dollars trading on AMD in 2008 undermined the claim that he had inside information, Dowd said.

“This is probably the first insider-trading case in history where the government says the defendant lost $67 million,” he said.

Loyal Director

Dowd reviewed a July 2008 recording of then-Goldman Sachs board member Rajat Gupta telling Rajaratnam about deliberations of the bank’s board. Rajaratnam, who was due to meet Goldman Sachs president Gary Cohn in coming days, didn’t trade on the information. Dowd said the recording was nothing more than Gupta helping Rajaratnam prepare for an important meeting.

“It shows Gupta being a loyal and responsible director of Goldman Sachs,” Dowd said.

Dowd reminded jurors that prosecutors didn’t call as witnesses Gupta or other alleged sources of inside tips, including ex-traders Danielle Chiesi and Roomy Khan. Rajaratnam is alleged to have conspired with the two women, both of whom pleaded guilty to insider trading.

Dowd repeatedly assailed the government’s case, calling it “make-believe,” a “leap of faith” and “desperate.” He characterized wiretapped calls that jurors heard of Rajaratnam and Chiesi as two portfolio managers talking.

‘Nothing Wrong’

“Nothing wrong with it,” he said. “That happens every day on Wall Street.”

On rebuttal, Assistant U.S. Attorney Jonathan Streeter told jurors that Rajaratnam was the manager of a multibillion dollar hedge fund and a graduate of a top U.S. business school, the Wharton School at the University of Pennsylvania. “Of course” Rajaratnam knew it was illegal to trade on advance word of a company’s earning, Streeter said.

The judge is likely to instruct jurors on the law on April 25, and jurors will then begin deliberating.

Rajaratnam is charged with five counts of conspiracy and nine counts of securities fraud. The conspiracy counts each carry a maximum five-year prison sentence and the fraud counts each carry a maximum 20-year term.

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