US wants Gupta insider trading jury to hear Rajaratnam calls

NEW YORK, April 30 Tue May 1, 2012 12:57am EDT

NEW YORK, April 30 (Reuters) - U.S. prosecutors want the jury in May's insider trading trial of former Goldman Sachs director Rajat Gupta to hear three secretly-recorded phone conversations of Galleon Group hedge fund founder Raj Rajaratnam as evidence of the purported conspiracy between them.

In a pre-trial filing in Manhattan federal court on Monday night, the government said two of Rajaratnam's conversations with his principal trader and another with Galleon's then portfolio manager showed Gupta leaked Goldman board secrets at the height of the financial crisis in 2008. The calls were recorded by the Federal Bureau of Investigation.

"Rajaratnam's statements in these three recorded conversations are essential evidence of the insider trading charges against Gupta in this case," prosecutors Reed Brodsky and Richard Tarlowe wrote to U.S. District Judge Jed Rakoff.

The government said Gupta had passed the Goldman information to Rajaratnam in earlier phone calls that were not part of the FBI's wiretap surveillance of Rajaratnam, who is serving an 11-year prison term, the longest handed down for insider trading, after his conviction at trial a year ago.

A spokeswoman for Gupta's lawyer, Gary Naftalis, declined to comment on the government's motion. Defense lawyers have until May 11 to respond. The trial is scheduled to start on May 21.

Gupta, also a former global head of McKinsey & Co, is the highest-ranking corporate executive to be charged in a broad U.S. crackdown on insider trading at hedge funds in recent years. Dozens of people have pleaded guilty or been convicted at trial.

Gupta is accused of providing inside tips about Goldman and Procter & Gamble board meetings to Rajaratnam in 2007 and 2008. Rajaratnam was recorded by the FBI discussing the Goldman information with trader Ian Horowitz and portfolio manager David Lau.

The indictment said Gupta gave Rajaratnam advance knowledge of a $5 billion investment in Goldman by Warren Buffett's Berkshire Hathaway Inc at the height of the 2008 financial crisis, Goldman's surprise fourth-quarter 2008 loss, and P&G's quarterly earnings in late January 2009.

Monday's government motion argued that since there were no recordings of phone conversations between Gupta and Rajaratnam on Sept. 23 and on Oct. 23, 2008 and no other participants, "Rajaratnam's statements in the subsequent wiretapped calls with Horowitz and Lau provide indispensable evidence" that Gupta tipped Rajaratnam and that Rajaratnam purchased and sold Goldman stock on Sept. 23 and Oct. 24 on the basis of those tips by Gupta.

The former Goldman and Procter & Gamble director has denied the charges, which include five counts of securities fraud and one count of conspiracy. Gupta says he lost money investing with Rajaratnam and that as many as four other Goldman personnel could have been tipping Galleon. Gupta could face up to 25 years in prison if convicted of securities fraud.

Horowitz has been described in the case as an unindicted co-conspirator. A lawyer for Horowitz could not be reached to comment.

The case is USA v Gupta, U.S. District Court for the Southern District of New York, No. 11-907.

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