Galleon Defendant Hariri Prepares for Prison, Hopes for Rebound

Ali Hariri, the former Atheros Communications Inc. vice president set to begin an 18-month prison term after pleading guilty in the Galleon Group LLC insider-trading probe, said he was “absolutely wrong” when he told a friend and mentor about the company’s earnings.

Hariri, in his first published interview since his arrest in November 2009, said he felt manipulated by Ali Far, a co- founder of the hedge fund Spherix Capital LLC in San Jose, California.

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Ali Hariri, former VP of Atheros Communications Inc.

Rick Maiman/Bloomberg

Hariri is set to begin an 18-month prison term.

Hariri is set to begin an 18-month prison term. Photographer: Rick Maiman/Bloomberg

Hariri pleaded guilty March 3 in federal court in New York to giving Atheros earnings data to Far, who made hundreds of thousands of dollars by trading ahead of the company’s announcements. Far, who had also been an analyst and portfolio manager at New York-based Galleon, pleaded guilty in October 2009 and is aiding the U.S. probe.

“I had a big mouth and it was absolutely wrong,” Hariri said yesterday. “I’m not blaming him. It was my own mistake.”

Hariri, 39, who is scheduled to report to federal prison Jan. 31, said he wants to help others avoid his mistakes and hopes to “do something meaningful” after his release. His sentencing judge said Hariri made $2,500 on stock tips he got from Far.

“When you’re in Silicon Valley and when you’re a techie working on a product, the furthest thing from your mind is insider trading,” Hariri said. “You say something. You don’t think about it. A year later the FBI knocks on your door.”

Rajaratnam Arrest

The U.S. insider-trading probe became public in 2009 with the arrest of Galleon Group hedge fund co-founder Raj Rajaratnam, who denies the charges against him and is scheduled to go on trial in Manhattan on Feb. 28. At least 16 people have pleaded guilty out of about two dozen arrests in the probe. The crackdown widened late last year with the arrest of workers at technology firms and of employees at an expert-networking firm, which links traders to industry experts.

Hariri, who was a manager at Atheros’s broadband networking unit, said that he “pled guilty because I was guilty” and offered apologies to his friends, family and former colleagues. He said he lost his career and his reputation, as well as millions of dollars in salary, bonuses and stock, which he sold to help pay for his legal defense.

Atheros, based in Santa Clara, California, sells chips used in Wi-Fi networks, which provide short-range wireless Internet connections. It also makes semiconductors for Bluetooth wireless networks and chips used in global-positioning-system equipment.

Qualcomm Inc., the world’s largest maker of mobile-phone chips, said Jan. 5 that it agreed to buy Atheros for about $3.2 billion in cash, or $45 a share.

Shares Lost

If he were still with Atheros, Hariri said, he probably would have owned about the same number of shares as David Torre, whose promotion to vice president in 2006 was announced in the same statement as Hariri’s. As of Nov. 8, Torre held 23,162 shares, worth more than $1 million at Qualcomm’s offering price, according to data compiled by Bloomberg.

Hariri, born in Tehran, said his family included two uncles who were “top brass” in the army under Shah Mohammad Reza Pahlavi. With only $1,200, his parents left Iran for Dubai in the 1980s, before Hariri would have been conscripted to fight in the country’s war with Iraq, he said.

Hariri earned bachelor’s and master’s degrees in electrical engineering from the University of Connecticut before coming to California. He went to work for S3 Corp. in 1996 and later joined Epigram Inc., which Broadcom Corp. acquired in 1999. He moved to Atheros in 2005.

Good Impression

Hariri said he first met Far in the late 1990s after driving his mother to a wedding. He and Far crossed paths again at a family gathering about 1999, Hariri said. Far, who has a law degree as well as master’s degrees in engineering and business administration, “made a good impression,” Hariri said.

“He understood philosophy, poetry, business,” Hariri said. “He was a very intelligent person. He gained my trust.”

Hariri said that, before marrying his wife in 2007, he talked to Far as well as his father.

“I looked at him not as a hedge fund,” Hariri said. “I looked at him as a friend and a mentor.”

In March, Hariri admitted in court to leaking information on Atheros’s reduced earnings outlook for the fourth quarter of 2008, according to court filings. After receiving the tip on Dec. 17, 2008, Far bet that Atheros’s stock would fall, using a short sale, prosecutors said.

Hedge Fund Profit

After the market closed that day, Atheros cut its earnings forecast by more than half. The shares had fallen about 7 percent when the market opened the next day. Far’s hedge fund made a profit of about $480,000, prosecutors said.

Hariri said he never profited directly from Far’s trades. All he got in return was advice on other stocks, he said.

He said he met Rajaratnam briefly on three occasions at Silicon Valley events, describing him as “very polite.” Far, during a gathering at his house, gave Hariri a “30-second” introduction to Richard Choo-Beng Lee, Hariri said. Lee was Far’s partner at Spherix and pleaded guilty in the Galleon case in November 2009.

“On a grand scale, I was a spoke on the wheel,” Hariri said. “Somebody told me, ‘you’re not even the ant on the elephant’s ass,’ but when the elephant gets fumigated, the ant dies too.”

Cristina Arguedas, Hariri’s lawyer, told U.S. District Judge Richard Holwell at Hariri’s November sentencing that he wouldn’t have committed any crimes if Far hadn’t targeted him.

Persian Connections

“Ali Far is a man who is 10 years older than Ali Hariri,” Arguedas, of Arguedas, Cassman & Headley LLP in Berkeley, California, told the judge, according to a transcript. “They are both Iranian. They have family, Persian connections.”

Sentencing guidelines called for Hariri to be given a term of 2 years to 2 1/2 years for one count each of conspiracy to commit securities fraud and securities fraud. Holwell accepted Arguedas’s request for a shorter sentence.

“This reflects in part that the defendant’s motivation was not entirely economic but was to some degree, perhaps some important degree, based on his obviously mistaken idea of his friendship,” Howell said, according to the transcript.

Hariri’s sentence included a $50,000 fine and an order to forfeit $2,500, the amount the judge said Hariri had earned on stock tips provided by Far.

Arguedas declined to comment yesterday in a phone interview about what stock tips Hariri had received from Far.

Least Culpable

“He is as minimally involved and is the least culpable of all of them,” Arguedas said, comparing Hariri with other Galleon defendants. “And it’s unfortunate that he knew somebody who knew somebody related to Galleon.”

Far’s lawyers, Steven Kobre and Andrew Lourie, didn’t immediately return a call seeking comment. Prosecutors didn’t immediately comment.

Atheros General Counsel Adam Tachner, according to a letter read in court by Arguedas, described Hariri as “a good person, who allowed himself to be led astray by the pressure to demonstrate success among his friends and family.”

Now facing prison, Hariri has kept himself busy by volunteering for charitable causes, he said. He is compiling a reading list that he said is heavy on the themes of self- improvement and “people in difficult situations.” The list includes “Mandela’s Way: Fifteen Lessons on Life, Love, and Courage” and “Borrowing Brilliance: The Six Steps to Business Innovation by Building on the Ideas of Others.”

Daily Runner

“It’s a very difficult period and my goal is to spend it as constructively as I can,” said Hariri, a daily runner who said he hopes to exercise and stay fit while in prison.

Hariri said he is thankful for the support of friends and family, including his wife, with whom he shares a two-bedroom condominium in San Francisco.

“We were going to start a family,” he said. “And now it’s 18 months delayed and we’re getting older.”

Hariri said that after his release, he plans to warn students and business people about the costs of breaking the law and to be careful about whom they trust. He also wants to rebuild his reputation.

“I hope the door will be open to go back to the business world,” he said. “Hopefully people will say, ‘He screwed up, but he learned his lesson.’”

The case is U.S. v. Hariri, 09-02436, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Michael Hytha in San Francisco at mhytha@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.