Galleon's Raj Rajaratnam gears up for a legal showdown

With a mountain of evidence ranging from a cooperating witness to wiretapped confessions by an accomplice all but admitting guilt, prosecutors in the Galleon Group insider trading case might think they have an airtight case. But billionaire Galleon founder Raj Rajaratnam seems to be bracing for a fight.

Last week Rajaratnam's lawyers took to the offensive and succeeded in having cooperating witness Roomy Khan's criminal background included in the hearings. Khan, a former employee of both Intel and Galleon, is a central witness against Rajaratnam. Khan has already pleaded guilty to trading on and passing on insider information as part of a plea agreement.

But Khan was charged with wire fraud in California in 2001 and pleaded guilty the next year, an offense that drew a penalty of home confinement. While prosecutors had originally resisted having Khan's shady past included in the trial, they now seem to be acquiescing. Having Khan's prior unethical dealings made public could help Rajaratnam chip away at Khan's credibility.

The push to include Khan's prior offenses follow other maneuvers indicating Rajaratnam doesn't plan to go quietly. Prosecutors are seeking 30 more days to file an indictment in order to "engage in further discussions" with Rajaratnam's counsel. But Rajaratnam isn't interested in a plea agreement, according to some reports.

Instead, Rajaratnam's lawyers' pushed to have his bail reduced from $100 million to $25 million. He has $30 million of property in the U.S. and would not simply abandon it given that he plans on winning the case, his lawyers say. But despite their arguments that Rajaratnam doesn't pose a flight risk, a judge has denied the bail reduction.

Of course, Rajaratnam's lawyers can be expected to put on a brave face to gain potential negotiating advantages. But given the slam-dunk case prosecutors feel they have -- they've held press conferences to note the arrest, and TV cameras were present to capture Rajaratnam being arrested at his apartment in the early morning -- the billionaire's confidence is striking.

From the get go, Rajaratnam maintained he was innocent and would be cleared of all charges, even as the hedge fund he built quickly folded despite his assurances. But Rajaratnam also said that he would marshal the same energy in mounting his defense as he did in making money for his investors.

Given his track record in that arena and the massive resources at his disposal, prosecutors -- who have appeared poised for a quick victory lap -- should be preparing for a painful slog.

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