Raj Rajaratnam made $4 million on Hilton Hotels stock when the company was bought by Blackstone Group LP in July 2007, jurors heard on Monday, as prosecutors pressed their case that the hedge fund founder had profited from inside tips about pending deals.

At the start of the third week of the biggest insider trading trial in decades, jurors heard testimony from a Moody's Corp credit analyst who received urgent e-mails and a phone call from a Hilton executive on July 2, 2007.

Hilton was about to be bought by private equity firm Blackstone and Moody's was required to assess Hilton's debt rating, analyst Peggy Holloway told the Manhattan federal jury as Rajaratnam sat listening with his defense team.

In cross-examination, Rajaratnam's lawyers cited the $26 billion Hilton acquisition, which was announced on July 3, 2007, as an example of how his research, analysis and reliance on public information had made him successful, and they contended that he had violated insider trading laws.

Rajaratnam lawyer Michael Starr repeatedly asked the analyst to acknowledge that regulatory filings and other analysts' research on Hilton were not secret or confidential.

She testified that she had told a junior analyst, Deep Shah, to start on the documentation. Shah has been accused of being a co-conspirator in the sweeping insider trading case but has been at large since charges were filed in late 2009.

I told him the context of the call, Holloway testified. She also said it was standard policy to remind junior associates they cannot 'chit-chat' about such information because it could inadvertently lead to a leak.

Sri Lankan-born Galleon Group founder Rajaratnam, 53, is accused of making $45 million in illicit profit from stock trades based on tips from a network of executives and traders at the highest levels of corporate America.

The onetime billionaire faces up to 20 years in prison if convicted on the most serious charge of securities fraud.

Starr showed the jury documents filed with regulators that Galleon held 250,000 Hilton shares worth $8.9 million on March 31, 2007 and had boosted its holding to 475,000 shares worth $15.9 million by the end of June, before the alleged tip.

Prosecutors also called Intel Corp executive Sriram Viswanathan as a witness, and played excerpts of 2008 FBI wiretaps of Rajaratnam speaking with then-friend and Intel executive Rajiv Goel, including one that discussed an Intel board meeting.

Goel is among 19 defendants who have pleaded guilty out of 26 accused. He could testify at the trial.

Viswanathan was asked about news reports in 2007 and 2008 about a potential telecommunications joint venture between Sprint Nextel Corp and Clearwire Corp and an investment in it by Intel's capital division.

Just because there is speculation in the press does not mean that the confidential agreements are still not in place, Viswanathan testified.

Rajaratnam and Goel are accused of conspiring to trade on confidential information about the companies before the venture was announced in May 2008.

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

(Additional reporting by Basil Katz, editing by Gerald E. McCormick and Ted Kerr)

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