A corrupt man or a legitimate stock researcher?

A prosecutor and a defense lawyer painted starkly different portraits of hedge fund manager Raj Rajaratnam at the start of the biggest Wall Street insider trading case in a generation.

Rajaratnam, a Sri Lankan-born, one-time billionaire, sat impassively and wrote occasional notes on a legal pad during the two hours of opening statements in his high-stakes trial in Manhattan federal court.

Greed and corruption. This is a case about that man right there, Raj Rajaratnam, using stolen business information to make tens of millions of dollars, Jonathan Streeter, an assistant U.S. attorney, told the jury, pointing at Rajaratnam.

But defense lawyer John Dowd told jurors that the government has it wrong and the Galleon Group founder engaged in legal stock research and analysis that made him successful.

The government accuses Rajaratnam, the central figure in a vast insider trading probe, of reaping $45 million in illegal profit between 2003 and March 2009. The U.S. Justice Department has made insider trading probes into the secretive $1.9 trillion hedge fund industry a priority, and the Rajaratnam prosecution is its signature case.

The defense team faces hundreds of secretly recorded phone calls in evidence and several former friends or employees who will testify for the prosecution. Rajaratnam's lawyers contend that the government has significantly broadened its definition of insider trading.

There is a real world context in which law abiding professionals discuss stocks and trades, Dowd told the jury of 12 and six alternates. In the real world people are discussing stocks. It is legal and it is good for all of us.

These things are going on blocks from this courthouse, Dowd said, referring to nearby Wall Street. It was his duty to seek out information to make smart investment decisions.

In the wood-paneled courtroom, both lawyers stood at a podium when it was their turn to address the jury. Dozens of cardboard document boxes and files were piled in one corner that are being used in the case.

Streeter said Rajaratnam obtained an illegal advantage over ordinary investors. He exploited a corrupt network of people to obtain information about company secrets such as earnings and mergers, the prosecutor said.

He said Rajaratnam gets tomorrow's business news today.

Rajaratnam attended the trial with no one except his lawyers, unlike many defendants who have family or friends with them.

THROWBACK TO THE '80s

Not since the mid-1980s has a Wall Street insider trading case grabbed such wide public attention. Then, speculator Ivan Boesky, Drexel Burnham Lambert and its junk bond chief, Michael Milken, were prosecution targets.

Rajaratnam could go to prison for 20 years if convicted of the most serious charge of securities fraud.

Since arresting Rajaratnam in October 2009 and announcing criminal charges against 26 former traders, executives and lawyers, authorities have pressed on with what they call the biggest ever hedge fund insider trading probe.

Nineteen people have pleaded guilty in the case. It stands apart from past insider trading investigations because of the government's wide-scale use of phone taps. Jurors will hear up to 173 audio recordings during the trial.

The jurors, including a nurse, a graphic artist and a city transportation department employee, were chosen from a pool of about 150 people. They include five men and seven women.

During jury selection, they were questioned about their attitudes toward Wall Street, wealthy financiers and their hobbies. There were light moments such as when one woman, asked what she liked to do in her free time, said jury duty. She was picked for the panel.

The case is USA v Raj Rajaratnam, U.S. District Court for the Southern District of New York, No. 09-01184.

(Additional reporting by Basil Katz, editing by Andrew Marshall, Dave Zimmerman, Gary Hill and Bernard Orr)

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