Above And Beyond Promotion

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By CHESTER DAWSON in Sendai, Japan,
DAISUKE WAKABAYASHI
in Fukushima Prefecture and JURO OSAWA in Tokyo

WSJ’s Daisuke Wakabayashi reports from Northern Japan, where the extent of the devastation from a 8.9-magnitude earthquake and subsequent Tsunami became even clearer with the arrival of daylight Saturday morning.

Tens of thousands of Self-Defense Forces searched desperately for survivors in earthquake-ravaged northern Japan on Saturday as rescue and relief efforts went into full force, even as concerns rose that a radiation leak may have occurred at a nuclear power facility in the country.

More than 200,000 Japanese were ferried to relief shelters and millions of homes were left without power and water after the country’s most powerful quake ever struck on Friday.

Strong Quake Strikes Japan

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NTV Japan/APTN/Associated Press

Smoke rose Saturday from the Fukushima Daiichi power plant, in an image from broadcaster NTV Japan.

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Kyodo/Reuters

Japan Quake’s Effects

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See a map of post-earthquake events in Japan, Hawaii and the U.S. West Coast.

Rescue efforts accelerated as police, fire department and defense forces deployed to severely affected areas. Low-flying government rescue helicopters, including Japanese Self Defense Force Blackhawks, hovered low over houses with roof tiles ripped asunder, looking for survivors. Further up the coast toward Sendai, entire roads and bridges were washed away. A few cars could be seen carefully navigating twisted and sand-strewn roads in an apparent attempt to flee, or survey the damage to their communities. No more than a handful of pedestrians could be seen for hundreds of miles up the coast.

An estimated 3,400 buildings have been partially or completely destroyed. In Sukagawa, a small town located in Fukushima Prefecture, about 200 people stood in line to receive water supplies through the night at an emergency distribution center, and water was rationed to a maximum of 10 liters per household.

“Power is cut in some parts of town, but what we need is water and food,” said Dai Iwaya, a 37-year old city project and fiscal planning officer. Homes are in various states of disrepair, with fallen roof shingles and concrete blocks strewn about.

Shaky Ground

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Colliding plates under earth’s surface make Asia Pacific one of the most tectonically active region on earth.

Northeast Japan was a wasteland Saturday morning after the country’s earthquake triggered a 30-foot tsunami. The cascade of destruction killed hundreds, forced tens of thousands of people from their homes and raised fears of a radioactive release from damaged nuclear power reactors.

Sendai, a city of one million people, was among the hardest-hit areas of the nation. An aerial tour by helicopter Saturday morning near the local airport here showed a dead zone of small planes, helicopters and cars strewn half-submerged in green-brown water.

Along the coast north of the airport, oil-storage tanks burned brightly, sending a funnel of pitch-black smoke nearly a mile into the sky. Fires also burned in industrial parks ringing the area, nearly 24 hours after Friday’s 8.9-magnitude earthquake, one of the world’s five strongest over the past century, ground life across the country to a halt.

Japan’s northeast appeared to have been subject to the most severe damage, as powerful waves swallowed warehouses and fishing boats and swept across neighborhoods and rice paddies. Damage and disruption was aggravated by more than 100 powerful aftershocks in the hours after the first jolt.

As of 5 p.m. Saturday, Japan’s official toll stood at 605 dead, 654 missing, according to police, with more than 1,000 injured.

A building at a troubled Japanese nuclear power facility collapsed Saturday afternoon with smoke billowing out, and officials responded by expanding the evacuation perimeter to a 20-kilometer radius and saying they were preparing to stockpile iodine supplies “just in case.”

Officials declined, however, to say whether the explosion had occurred specifically at the Fukushima Daiichi No. 1 nuclear reactor, or to confirm media reports that a sharp increase in radiation outside the site had been detected.

Disastrous Japan Earthquakes

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Associated Press

In September 1923, a 7.9-magnitude earthquake hit the Nihonbashi district of Tokyo.

See some of the most powerful earthquakes to have hit the island nation.

The World’s Biggest Earthquakes

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Associated Press

A photographer looked over wreckage as smoke rose in the background from burning oil storage tanks at Valdez, Alaska, March 29, 1964.

Earlier in the day, Tokyo Electric Power Co. had been taking emergency measures to avert a meltdown of a stricken nuclear power plant hit by Friday’s massive tsunami in northern Japan. Those steps appeared to be bringing down the dangerous pressures that had built up in the container, a Tepco spokesman said Saturday afternoon.

Previously, the utility had said there was a risk of a meltdown in the core after the quake cut off power to pumps providing cooling water. That, in turn, could lead to heating of the core, the risk of a meltdown, and the release of radiation.

The impact of the quake’s first jolt, which hit at 2:46 p.m. on a clear Friday afternoon, was felt around the country, including in Tokyo. There, office buildings swayed. Trains, buses and phone service stopped. Millions of households lost power.

Japanese spent the rest of the day and night watching televised images of fires, collapsed buildings and deadly debris-filled waves, delivered by news anchors in hard hats. Powerful aftershocks emanating from off the eastern coast shook the country and its people.

The quake’s footprint spread at about 3 a.m. local time, as new seismic activity rippled through the center to the country’s western coast, raising the specter of a series of quakes extending throughout the country, which sits atop crisscrossing fault lines on the so-called Pacific Rim of Fire.

“I really thought I was going to die,” Yuhei Sakaibara, a reporter for the local Sendai newspaper, said in a telephone interview Friday night. “Dishes went flying in every direction and huge cracks ripped up the walls. When I got outside, I saw that several houses in the neighborhood had collapsed.”

In a town of about 12,500 residents in neighboring Fukushima prefecture—at the outskirts of the worst-damaged areas—roads were cracked. Goro Okawara, a 68-year-old farmer who said he was in the fields when the first quake hit, said he thought the temblor would last 30 seconds but “it just kept going and kept getting worse and worse.”

The traditional kawara tiles on Mr. Okawara’s roof “came flying off,” he said, crumbling and spraying red clay blocks in all directions. A glass door shattered. A crater appeared in his driveway. Nearby, he said, the crematorium where his family was planning a funeral for a relative Saturday had collapsed. At the local cemetery, many headstones were snapped in half.

Some 100,000 people had left Fukushima province by early Saturday, Kyodo reported.

The damage slammed a nation that has had its prolonged share of miseries. A long economic decline saw Japan recently slip behind China as the world’s second-largest economy. A series of scandals have not only discredited and paralyzed its political leadership, but also tarred institutions from elite universities to the ancient sumo sport.

Japan’s long-deadlocked parliament appeared initially to have set aside political bickering and rallied around calls for unity and new measures to keep the quake from further weakening the economy.

With damage estimates likely to mount quickly, news of the quake—which struck near the close of trading Friday on the Tokyo Stock Exchange—may pummel Japanese shares next week. Should the already debt-burdened government be forced to issues trillions of yen in reconstruction bonds, the move would affect the Japanese fixed-income market and weigh on Japan’s already-weakened credit rating from the world’s major rating agencies.

Yumiko Ono reports from Tokyo that more than 1000 people are dead or missing after a massive 8.9 magnitude earthquake and devastating tsunami struck Northern Japan Friday.

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Some economists have argued that a quake could actually lift the economy in the long run, by requiring a surge in rebuilding spending. But more immediately, the impact disrupted a spectrum of the nation’s industries, from auto and consumer-electronics makers to steel and beverage producers, forcing a number of them to shut factories.

Offers of sympathy were swift from around the world, with Japan’s foreign ministry saying it had received assistance offers from some 50 governments. These included China and Russia, which have recently had testy territorial disputes with Tokyo.

Chinese Premier Wen Jiabao expressed “deep sympathy and solicitude to the Japanese government and the people” and told Japanese Prime Minister Naoto Kan that China is willing to offer aid.

“Today’s events remind us of just how fragile life can be,” U.S. President Barack Obama said at a news conference. “Our hearts go out to our friends in Japan and across the region.”

Your Tsunami Photos

Were you there when the earthquake hit Japan, or were you among those evacuated along Pacific coasts? Email us your photos of the damage, at yourphotos@wsj.com.

Mr. Obama said he spoke Friday morning with Mr. Kan and offered assistance. He said the U.S. has an aircraft carrier in Japan now, with another is on the way. A third ship is en route to the Marianas Islands to assist as needed, he said.

Friday’s quake was the strongest ever to hit the earthquake-prone country in terms of strength, but didn’t appear, at least in the early hours, to be as devastating as two great quakes of the 20th century. More than 100,000 people died or went missing in the 7.9-magnitude Great Kanto earthquake in 1923. The 1995 Kobe earthquake, which registered 7.3, killed more than 6,000 people in the region.

One reason for the lower death toll appeared to be a heightened readiness in Japan, raised particularly after the Kobe quake embarrassed the government and builders for weak preparedness.

The central bank quickly announced that it has set up a disaster-management team, headed by Bank of Japan Gov. Masaaki Shirakawa, and said it was standing ready to supply liquidity to ensure stability in financial markets. The government will likely first use roughly 200 billion yen ($2.41 billion) in emergency funding left in the budget for the current fiscal year ending this month, several Finance Ministry officials said.

Across Japan, ports, railways and airports shut down. Car-navigation systems indicated that almost every entry point in Tokyo to the nation’s highway system was closed.

In Tokyo, cellphone reception was down, causing long lines to snake around pay phones. Children walked home from school, some with protective head gear.

“
This is truly a horrible tragedy. I feel very sorry for those affected as well as their family members. I hope they can get back on their feet quickly.
”

—James Mims

At 3:24 p.m., the first large aftershock could be felt by those standing in central Tokyo. Looking up at construction cranes shaking violently atop half-completed buildings, people gasped. As of early Saturday, at least 50 aftershocks had been recorded.

–Mariko Sanchanta, Kana Inagaki, Yoshio Takahashi and Mari Iwata contributed to this article.

Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com and Juro Osawa at juro.osawa@dowjones.com

BY NICK TIMIRAOS AND DAN FITZPATRICK

Bankers are ratcheting up their rhetoric as they fight a mortgage-servicing settlement proposal, predicting lasting damage to the U.S. economy in an effort to force regulators to soften terms of any penalties.

On Thursday, Wells Fargo Co. Chief Executive John Stumpf said extensive loan principal reduction would increase the U.S. deficit if taxpayers are forced to pay for write-downs of loans held by government-controlled Fannie Mae and Freddie Mac.

“It’s important to the country so that whatever happens does not slow down the recovery,” Mr. Stumpf said.

Bank of America executives issued similar warnings on Tuesday, calling principal reductions …

By CARRICK MOLLENKAMP

A large Los Angeles County pension fund has stopped funneling some currency trades to Bank of New York Mellon Corp., protesting the way the bank profits from the transactions.

The decision by the Los Angeles County Employees Retirement Association, detailed in correspondence reviewed by The Wall Street Journal under the California Public Records Act, is a rare example of a pension fund ceasing business with a custody bank. The dispute comes amid scrutiny by funds and investigators over currency-trade costs.

At the center of the clash is the role of custody banks, which act as custodians for investment firms’ securities, handling various back-office tasks for institutional investors. The Los Angeles County fund alleged in correspondence that BNY Mellon wasn’t permitted to profit from undisclosed foreign-exchange transactions.

The fight began last year when an official at the Los Angeles fund asked BNY Mellon for data to better understand how the banks profits on foreign exchange conducted on the fund’s behalf. In private letters and emails, the fund claimed that it expected BNY Mellon to be a “fiduciary” and provide real-time prices in handling currency transactions the fund uses to facilitate its investments in foreign securities. The correspondence, from October 2010 to February 2011, provides a window into concerns by pension funds into how custody banks profit from currency trades.

BNY Mellon denied the claim in the correspondence, noting that its contract with the fund says its role is that of a “principal,” which trades against the fund and its investment managers.

BNY Mellon, in a letter, said it “executed all foreign-exchange transactions with … as a counter-party and acting as a principal, at the direction of and its investment managers.” This essentially means that the bank doesn’t seek to generate profit for the pension fund; it seeks to generate profit for the bank.

The plan’s chief executive, Gregg Rademacher, declined to comment on the documents seen by the Journal and the decision to cease using BNY Mellon for certain foreign-exchange trades. In letters and emails, BNY Mellon said the fund and its investment managers “were solely responsible for choosing whether, how, and with whom, to execute foreign exchange.”

The bank also said in the correspondence that the fund always had known that the bank generated revenue from the currency trades.

BNY Mellon maintains it provides a valuable service and that “standing-instruction” clients are able to minimizes trade-execution costs and risk.

In a “standing-instruction” contract, clients allow banks to handle currency trades. Funds have the option to negotiate currency trades, which can produce a more-advantageous rate, but that requires staff and expertise in foreign exchange.

“We continue to enjoy very strong use of our FX services, including our standing-instruction program, among clients and their investment managers,” a BNY Mellon spokesman said.

“The pricing and terms of our ‘standing-instruction’ program are spelled out in various materials provided to clients and their money managers,” said the BNY Mellon spokesman. “They acknowledge and agree to those terms in writing. Our U.S. trading desks publish a guaranteed range of FX prices every morning. Clients and money managers can compare those guaranteed rates to other market rates, and they can easily switch to a different option or provider.”

Last October, the fund’s chief investment officer, Lisa Mazzocco, asked BNY Mellon in a letter for data to better understand how the bank profits on foreign exchange conducted on the fund’s behalf.

Ms. Mazzocco didn’t respond to requests for comment.

In a Nov. 19 letter, a BNY Mellon “relationship manager” told Ms. Mazzocco the bank traded with the fund as a “principal,” and that it didn’t apply a specific “markup” but instead derived prices from a currency’s daily range.

The matter heated up in January, when Ms. Mazzocco said BNY Mellon was obligated to provide real-time, or “best execution” pricing. She alleged in a letter that BNY Mellon was improperly marking up currency-exchange prices.

“As a fiduciary, the Bank has a duty not to make undisclosed profits at expense,” she wrote.

BNY Mellon executive Laurin Moorereplied on Jan. 12 that the bank wouldn’t comply with the request.

Ms. Moore later wrote that BNY Mellon “complied with all applicable provisions” of its contract with the fund. BNY Mellon said Ms. Moore wasn’t available to comment.

The fund on Jan. 21 ended its currency trading with the bank on “standing instructions” after more back and forth between the bank and the fund. BNY Mellon remains a custodian for the fund, a BNY Mellon spokesman said.

In a Jan. 25 letter, a BNY Mellon lawyer said the bank’s custody agreement with the fund includes account-management duties. In sweep accounts, funds are automatically managed between a cash account and separate investment accounts.

The lawyer wrote that currency trades never were included in those custody duties.

Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com

By SUSAN PULLIAM And CHAD BRAY

The U.S. government played two of its best cards on Thursday in the insider-trading trial of Galleon Group founder Raj Rajaratnam: testimony from its star witness and secretly taped telephone recordings of the former hedge-fund manager allegedly receiving inside information.

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Bloomberg News

Raj Rajaratnam, right, at court Thursday with his attorney John Dowd.

Appearing before a packed federal courtroom in lower Manhattan during the first day of testimony, witness Anil Kumar, a former consultant at McKinsey Co, said Mr. Rajaratnam had paid him $500,000 a year through an offshore account for inside information.

Prosecutors played a recording of an Aug. 15, 2008, call during which Mr. Kumar tells Mr. Rajaratnam that a transaction that will boost the shares of Advanced Micro Devices Inc., a McKinsey client, is about to be completed. “They’ve shaken hands” on a deal, Mr. Kumar tells Mr. Rajaratnam. “You can now just buy.”

Prosecutors said Mr. Rajaratnam bought 10 million shares of the stock after the call and another 25 million shares after he got more information about the deal from Mr. Kumar.

Transcripts

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Read the wiretap conversation between Raj Rajaratnam and Anil Kumar. Plus, conversations between

Raj Rajaratnam and Rajiv Goel

Raj Rajaratnam and Adam Smith

Mr. Kumar, who pleaded guilty to conspiracy and securities fraud in January 2010, is seen as a crucial witness in the government’s case against Mr. Rajaratnam. His performance on the witness stand, especially when he is cross-examined by Mr. Rajaratnam’s lawyers, could have a big impact on whether the government wins a conviction, lawyers say.

Mr. Rajaratnam is accused of making improper trades based on tips about publicly traded firms allegedly obtained from a “corrupt network” of consultants, company insiders and others. Mr. Rajaratnam, who is facing 14 counts of conspiracy and securities fraud, has denied wrongdoing.

Prosecutors and Mr. Rajaratnam’s lawyers for months fought over the admissibility of the wiretaps as evidence in trial. The judge ultimately allowed the recordings to be admitted. About 90 hours of telephone conversations involving Mr. Rajaratnam are expected to be used as evidence.

The trial at the U.S. District Court for the Southern District of New York comes 1½ years after federal prosecutors signaled a renewed vigor in their pursuit of white-collar crime by revealing that they had used wiretaps for the first time in a significant insider-trading case.

“‘They’ve shaken hands’ on a deal, Mr. Kumar tells Mr. Rajaratnam. ‘You can now just buy.’”

Mr. Rajaratnam’s lawyers have argued that his trading and Galleon’s trading were based on a “mosaic” of research, not inside information. In his opening statement Wednesday, John Dowd, one of Mr. Rajaratnam’s lawyers, said Galleon spent about $300 million a year on research, and prosecutors had failed to do their “homework.”

Mr. Kumar, the former McKinsey consultant, testified that Mr. Rajaratnam told him in 2002 that Galleon had $100 million a year to spend on research, some of which the hedge fund manager said could go to McKinsey. Mr. Kumar said he made a couple of proposals to provide industry research to Mr. Rajaratnam, but the hedge-fund manager didn’t respond.

Eventually, Mr. Rajaratnam told him at a charitable event that such industry research “wasn’t really what I want,” and proposed hiring Mr. Kumar as a private consultant for Galleon for $500,000 a year, Mr. Kumar testified.

“You have such great ideas. It’s worth a lot of money,” Mr. Kumar said Mr. Rajaratnam told him. Mr. Rajaratnam also told him he was “underpaid” and “you deserve more,” Mr. Kumar said.

Raj Rajaratnam, the Sri Lankan-born founder of the hedge fund Galleon, has become the focus of the most high-profile insider-trading case in a generation. The Wall Street Journal explains the history of the man at the top of an alleged tech-stock secrets food chain.

Mr. Rajaratnam later told Mr. Kumar that he should get someone outside the U.S. to sign the consulting agreement on his behalf with Galleon and had him set up an account with Galleon under Mr. Kumar’s housekeeper’s name in order to reinvest the money with Galleon, Mr. Kumar said. The structure was so McKinsey didn’t know about the payments, Mr. Kumar said.

“Before 2004, did you ever give confidential information about McKinsey clients to Mr. Rajaratnam?,” asked Assistant U.S. Attorney Jonathan Streeter.

“No,” Mr. Kumar said.

“After 2004, did you do that?” Mr. Streeter asked.

“Yes,” Mr. Kumar said.

Jurors also heard two other wiretap recordings on which prosecutors said Mr. Rajaratnam received secret tips about public companies.

On one, Mr. Rajaratnam is heard speaking with Adam Smith, a former Galleon trader and another cooperating witness. In the May 1, 2008, call, Messrs. Rajaratnam and Smith are heard discussing Vishay Intertechnology Inc., one of the companies about which prosecutors contend Mr. Smith passed inside information on to Mr. Rajaratnam. Mr. Smith said that a bank where an information source of his worked had lost out on providing investment-banking advice on a transaction involving Vishay. “But he said they’re finally a willing seller,” Mr. Smith said on the recording. “The deal looks phenomenal to him…I’m gonna buy some.”

The Vishay deal never happened. Nevertheless, prosecutors allege that passing the tip was part of an ongoing conspiracy to trade in insider information.

Mr. Smith, who pleaded guilty to conspiracy and securities fraud, is expected to be a witness later in the trial, which is expected to last about 10 weeks.

Prosecutors played a third call between Mr. Rajaratnam and Rajiv Goel, a former manager in Intel Corp.’s treasury department. On the October 2008 call, Mr. Rajaratnam discusses PeopleSupport Inc. with Mr. Goel and says he knows information because “one of our guys is on the board.”

Reuters

Anil Kumar, pictured in January 2010

Mr. Streeter, the prosecutor, said Mr. Rajaratnam made profitable trades in Mr. Goel’s personal brokerage account, using inside information he received from others. Mr. Goel pleaded guilty to conspiracy and securities fraud last year and is cooperating with prosecutors. He also is expected to testify.

In his testimony, Mr. Kumar described how he decided to become a cooperating witness. After he hired a lawyer, he said, he “bared his soul,” telling his attorney he wanted to do what was necessary to “address” the situation. He then struck an agreement with prosecutors for his cooperation, he said.

Mr. Kumar said he has agreed to forfeit about $2.1 million allegedly paid to him by Mr. Rajaratnam, and about $600,000 in gains on the funds he was paid by Mr. Rajaratnam.

Write to Chad Bray at chad.bray@dowjones.com and Susan Pulliam at susan.pulliam@wsj.com

By CHAD BRAY And SUSAN PULLIAM

Galleon Group founder Raj Rajaratnam used a “corrupt network” of consultants, company insiders and associates to obtain inside information, generating tens of millions of dollars in illicit profits, a U.S. prosecutor said.

In an opening statement at a packed courtroom in New York federal court, Assistant U.S. Attorney Jonathan Streeter said the defendant used corrupt insiders to get “tomorrow’s business news today.” Gesturing toward Mr. Rajaratnam, who wore a gray suit and a blue tie, Mr. Streeter said the case centers on “greed and corruption.”

The insider trading trial of Galleon Group founder Raj Rajaratnam got under way on Wednesday afternoon. Ashby Jones has details and what to expect in the days ahead.
Plus, why hoods have become the new fashion statement.

John Dowd, a lawyer for Mr. Rajaratnam, said his client did nothing wrong and traded only on publicly available information and research by his hedge-fund firm. The government has it wrong and “failed to do its homework,” Mr. Dowd told jurors.

The dueling arguments opened what is expected to be a tension-packed, ten-week trial touching on, among other things, allegations of sex, lies and audiotapes. Opening statements are extremely important in criminal trials, lawyers say. Often, jurors are won over by an argument immediately or not at all, they say.

The overflow audience was silent during the arguments. In the crowd, a team of regulators and prosecutors in the audience sat spellbound. Among the spectators waiting to get into the courtroom was a defendant in a related insider-trading case and his wife.

The opening statements followed a day of jury selection that culminated in the swearing in of a 12-member jury of New Yorkers, most of whom told the judge overseeing the case that they weren’t familiar with Galleon or any of the executives who will take the stand or be referred to in the high-profile case. The sitting jurors were each more than 45 years old and came from parts of Manhattan, the Bronx and Westchester County, N.Y.

Mr. Rajaratnam showed little emotion throughout. He looked forward or took notes, occasionally glancing at Mr. Streeter.

Much is at stake for both sides. Manhattan U.S. Attorney Preet Bharara has made insider trading a focus, and this case could affect other insider-trading investigations by his office.

For his part, Mr. Rajaratnam, 53 years old, could face 20 years in prison if he is convicted on all 14 counts of securities fraud and conspiracy.

Insider-trading cases can be difficult to argue, and key to prosecutors’ success will be their ability to keep the jurors focused on the evidence.

The Galleon trial is the first insider-trading case to have as its centerpiece roughly 90 hours of telephone conversations. They involve Mr. Rajaratnam and were intercepted through a government wiretap. A lineup of cooperating witnesses will be called to the stand to corroborate the recordings, defense lawyers say.

Raj Rajaratnam, the Sri Lankan-born founder of the hedge fund Galleon, has become the focus of the most high-profile insider-trading case in a generation. The Wall Street Journal explains the history of the man at the top of an alleged tech-stock secrets food chain.

The challenge for prosecutors is to avoid overwhelming the jurors with evidence and to make their case simple and clear.

Mr. Streeter’s opening statement was akin to a primer on insider trading and underlined the challenge faced by the government.

Mr. Streeter kept his allegations basic. “People at Galleon did their homework, but they cheated, too. And that cheating is called inside information.”

Each time Mr. Streeter mentioned stocks Mr. Rajaratnam is accused of illegally trading in, he used the same refrain: “He didn’t just buy a little. He bought a lot.”

Mr. Streeter also repeatedly alleged that Mr. Rajaratnam frenetically bought and sold stocks on inside information and sought to “cover his tracks.” He alleged Mr. Rajaratnam would conjure up emails to make it appear as if his trading was based on research.

Mr. Dowd said his client ran a legitimate business that used a “mosaic” of research to make trading decisions about companies and “built his success on shoe-leather research.”

He said: “In the real world, there’s nothing wrong with talking about stocks or researching stocks.”

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Shirley Shepard

Sketch of Raj Rajaratnam in New York federal court on Wednesday.

Mr. Dowd said his client’s company spent about $300 million a year on research and traded millions of stock shares every year. The alleged improper trades accounted for a fraction of the trades Galleon made annually, Mr. Dowd said.

“It did not make sense to pay so much money for stock research to cover up so few trades,” Mr. Dowd said.

Prosecutors will hone their case and focus on a select group of cooperating witnesses, who they say were part of the scheme and recorded telephone calls of Mr. Rajaratnam in which he discussed improper trades.

Prosecutors plan to play two phone calls from 2008 during which Mr. Rajaratnam allegedly told Galleon employees that he had received tips regarding Goldman Sachs Group Inc., Mr. Streeter said, in one case telling employees he received a tip from a Goldman director.

The alleged inside information included a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. in Goldman at the height of the financial crisis, Mr. Streeter said.

Within minutes of hearing the Berkshire tip, Mr. Rajaratnam placed an order for $43 million worth of Goldman shares, Mr. Streeter said. Wall Street firms were able to fill an order of only $27 million in the minutes before the New York Stock Exchange closed, Mr. Streeter said. After the close, the Berkshire investment was announced, and Mr. Rajaratnam made more than $1 million on the trade, Mr. Streeter said.

At times, Mr. Dowd lapsed into financial-industry jargon. In discussing Mr. Rajaratnam’s trading in Goldman shares, he reference the financial crisis and the government’s Troubled Asset Relief Program.

“You all remember TARP?” Mr. Dowd asked the jury.

Write to Chad Bray at chad.bray@dowjones.com and Susan Pulliam at susan.pulliam@wsj.com