NEW YORK, May 18 (Reuters) - It was during a quiet afternoon in the sixth week of the insider-trading trial of hedge fund billionaire Raj Rajaratnam that prosecutor Reed Brodskysprang one of those rare surprises usually seen only in the movie version of a courtroom drama.

Brodsky, a U.S. federal prosecutor since 2004, seemed to catch defense lawyers and witness Richard Schutte off guard with a blistering cross-examination in the 2011 trial. The former Rajaratnam right-hand man was forced to admit that the biggest investor in a new hedge fund he launched was none other than the Galleon founder.

The disclosure that Rajaratnam had invested millions of dollars in that fund undercut Schutte's testimony as a character witness for the defense and proved to be one of the most dramatic moments in the two-month-long trial. Rajaratnam was convicted by a Manhattan federal court jury in May 2011.

"It was a surprising development and Reed did a very good job of pulling that out," said Richard Holwell, the presiding judge in the case who is now retired from the bench and returned to private practice in his own law firm.

Brodsky is one of the key prosecutors leading an investigation that has lasted more than four years into insider trading in the $2 trillion hedge fund industry. He is now gearing up for another trial that many courtroom watchers say could be his last big case for the U.S. government.

The defendant this time is former Goldman Sachs Group director Rajat Gupta, who is accused of supplying illicit tips to Rajaratnam. Jury selection is to start on Monday in federal court in Manhattan.

To date, four other top prosecutors who worked alongside Brodsky in developing the investigations that have led to dozens of convictions have left the U.S. Attorney's office in Manhattan for private practice. It is possible Brodsky may be the next to leave the office, which is led by U.S. Attorney Preet Bharara.

"After a high-profile prosecution, many prosecutors use the case as an opportunity to move to the private sector," said David Rosenfield, a former assistant U.S. attorney in New Jersey who is now counsel at Herrick Feinstein.

Brodsky, 42, declined to comment on the upcoming trial or on speculation about his next career move. A spokeswoman for Bharara also declined to comment.

REVOLVING DOOR

There is always a revolving door between the Justice Department and big law firms.

Jonathan Macey, a corporate finance and securities law professor at Yale Law School, said turnover is to be expected with long-running cases and there are always more young prosecutors to step in and fill the void.

"The skills they really need to win these cases are not specific insider-trading expertise, they need wiretaps," Macey added. "The only reason they got Raj Rajaratnam is because they had zillions of hours of recordings of him."

The case against Gupta may not be as sensational as the Rajaratnam trial, which featured a cast of colorful characters, many of whom were secretly recorded by the FBI in dozens of wiretaps played to the jury.

But it is closely related to that investigation. Gupta is alleged to have passed on inside information to Rajaratnam about both Goldman Sachs and Procter & Gamble, where he also was a board member.

Some high-profile witnesses could take the stand, including Goldman Chief Executive Lloyd Blankfein, who testified during Rajaratnam's trial. Three other current or former Goldman Sachs employees could also be called to testify.

This trial may also be more legally challenging than Rajaratnam's, one the most high-profile insider trading cases since the prosecution of Michael Milken.

In order to convict Rajaratnam on the insider trading charges, Brodsky must convince the jurors that Gupta fed tips to Rajaratnam after Goldman and P&G board meetings and conference calls.

But there are no direct wiretaps in the case. That means the prosecution will have to rely heavily on cooperating witnesses and circumstantial evidence such as the timing of meetings and recorded conversations in which Rajaratnam mentions tips about the companies in question.

Along with another assistant U.S. attorney, Richard Tarlowe, Brodsky will go head to head at the trial with Gary Naftalis, a star defense lawyer from law firm Kramer Levin Naftalis & Frankel whose avuncular personality contrasts with Brodsky's seriousness. Naftalis did not respond to a request for comment.

INTENSE AND AGGRESSIVE

Brodsky, who graduated from Duke University and received a law degree from Vanderbilt University Law School, clerked for a U.S. District Court judge in Puerto Rico and worked at the law firm WilmerHale in Washington before becoming an assistant U.S. attorney.

He is viewed as a commanding presence in the courtroom with large dark eyes and swept back hair. He is known to pace in front of the jury while delivering opening statements or closing arguments.

Other lawyers describe him as being intense and aggressive. Some critics say he can be too aggressive in his dealings with defense lawyers.

Even in his early days at the hard-charging U.S. attorney's office in Manhattan, Brodsky stood out. Former colleagues say he approached each case as unique, never allowing the categories of crimes to dictate the amount of energy he was willing to spend.

In one incident recalled by Daniel Stein, a former assistant U.S. attorney and now a partner at the firm Richards Kibbe & Orbe, Brodsky won a life sentence for a defendant in a drug trafficking case.

"What I remember is Reed throwing himself into this particular case and investigating every last angle," Stein said, adding that the sentence was unusually long and reflected "the amount of energy Reed put into the prosecution."

Among the stable of assistant U.S. attorneys working on the insider-trading crackdown, Brodsky has been much more combative than the more laid-back Jonathan Streeter, his partner on the Rajaratnam case who left the office several months ago. Streeter joined law firm Dechert in February.

Streeter's departure was part of a recent exodus from the U.S. attorney's office.

Andrew Michaelson, who worked as a special assistant U.S. attorney for just under four years, returned to his regular role as an attorney at the U.S. Securities and Exchange Commission and then moved to the law firm Boies Schiller & Flexner this month.

Another prosecutor who recently left is David Leibowitz. And another assistant U.S. attorney, Avi Weitzman, said he would leave the office in June to go into private practice.

In pre-trial hearings in the Gupta case, Brodsky has had one or two heated verbal skirmishes with Naftalis, a veteran New York defense attorney. At a March 16 hearing, both men raised their voices in a dispute over what potentially exculpatory evidence the government was supposed to provide the defense, particularly regarding an unidentified Goldman employee who may have been tipping Galleon.

"He made all of these grandiose claims in this courtroom in January claiming this was the first time he had heard of this," Brodsky said. He was interrupted by Naftalis interjecting: "I didn't say that."

Brodsky then conceded that Naftalis had only implied that evidence had been withheld from him. To which Naftalis replied: "Yes, I was very careful, and you're not."

Yet while they may square off in the courtroom, it is not all business between Brodsky and Naftalis.

On Tuesday, Brodsky will join with Naftalis at a swearing-in ceremony for new assistant U.S. attorneys. One of those being sworn-in is Naftalis's son Josh. Another of Naftalis's sons, Ben, is already an assistant prosecutor.

(Reporting by Emily Flitter and Grant McCool)

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