First wiretap played at Gupta insider-trading trial

NEW YORK Wed May 23, 2012 6:41pm EDT

Rajat Gupta, a former director of Goldman Sachs Group Inc., exits Manhattan Federal Court in New York February 7, 2012. REUTERS/Brendan McDermid

Rajat Gupta, a former director of Goldman Sachs Group Inc., exits Manhattan Federal Court in New York February 7, 2012.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - A New York jury on Wednesday heard former Goldman director Rajat Gupta on a FBI wiretap casually discussing business with Raj Rajaratnam, the now-imprisoned hedge fund founder he is accused of tipping off about boardroom secrets.

The 23-minute phone call on July 29, 2008 has no direct connection to the criminal charges against Gupta, but prosecutors played it to jurors to show the cozy relationship he had with Galleon Group founder Rajaratnam and their investments together.

"By the way, on that I want you to keep, us to keep having the dialogue as to what ... you know how I can be helpful in Galleon International. By the way not Galleon International, Galleon Group," Gupta told Rajaratnam, according to the court transcript of the conversation.

Their discussion begins with Rajaratnam telling Gupta he heard a rumor that "Goldman might look to buy a commercial bank" and Gupta's response is that "this was a big discussion at the board meeting." Investment bank Goldman did not acquire any bank.

The conversation goes on with Gupta seeking career and business advice from Rajaratnam. While the tape was being played to the jurors, Gupta sat at the defense table leafing through the 27-page transcript.

Gupta, 63, is accused of providing Rajaratnam with boardroom secrets between March 2007 and January 2009 while he was a director of Goldman Sachs Group Inc and Procter & Gamble Co. Gupta is also a former head of McKinsey & Co management consultancy.

Galleon had $7 billion under management at its peak and was wound down after Rajaratnam's October 2009 arrest in a broad U.S. crackdown on insider trading.

Part of the wiretap of Rajaratnam's cell phone was also played at his trial a year ago when a jury convicted him of 14 criminal charges. He was sentenced in October to 11 years in prison.

Gupta's lawyers argue that the prosecution's evidence against him is circumstantial and speculative. They say Gupta and Rajaratnam had a falling out in 2008 and Gupta lost all $10 million of an investment in a Galleon fund.

Goldman is key to the trial. William George, a director at Goldman since 2002, is expected to testify for the government on Thursday. The investment bank's chief executive, Lloyd Blankfein, could testify at the trial.

TOP SECRET INVESTMENT DEAL

Gupta is accused of tipping Rajaratnam about a deal that gave Goldman a $5-billion boost from renowned investor Warren Buffet at the height of the 2008 financial crisis, in an illegal breach of his fiduciary duties.

On Wednesday, a leading banker testified that the deal was "as top secret as you could get."

Former Goldman banker Byron Trott, a long-time Buffett confidant, told the jury that it was policy within a tightly-knit group of executives who negotiated such deals "never to talk about confidential information in public, or elevators. It was grounds for being fired."

Called to testify by prosecutors on the third day of Gupta's trial, Trott described how the investment deal was finalized in 30 or 40 minutes on the afternoon of September 23, 2008.

"Warren was not reachable until 2:30 p.m. He told me he promised to take his grandkids to Dairy Queen," said Trott, who left Goldman in 2009 and now runs his own merchant bank.

Prosecutors contend that Gupta tipped Rajaratnam 16 seconds after a conference call in which the Goldman board approved the Buffett investment, just minutes before markets closed at 4 p.m. on September 23, 2008.

Rajaratnam then hurriedly ordered his traders to buy Goldman stock, reaping $840,000 in profits when the stock rose the next day, according to trial evidence. The Buffett investment was not made public until about two hours after trading ended.

Gupta has pleaded not guilty to five counts of securities fraud and one count of conspiracy. The trial started on Monday and is expected to last about three weeks before a jury that includes an executive of a non-profit organization, a psychiatric nurse, a professor and an elementary school teacher.

Separately, a prosecutor told the judge during a jury break that a Goldman managing director, David Loeb, provided Rajaratnam with information about Intel Corp, Apple Inc and Hewlett Packard.

Loeb's name also came up on Tuesday in evidence presented to Gupta's jury. A main defense argument is that Rajaratnam had sources other than Gupta to provide him confidential company information.

Loeb has not been charged. He did not respond to email and phone messages. A Goldman spokesman declined to comment.

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

(Reporting by Grant McCool. Editing by Martha Graybow, Bernard Orr and Bernadette Baum)

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Comments (3)
Shourie wrote:
Mr Torquil,

I am an Indian and I am working here the USA since the past 5 years and not a single instant when I have participated in a single act of corruption or any misdeed, unlike my American friends who have cooked up their time sheets, given wrong reciepts for re-imbursement and the list goes on. And I can swear that I am not the only Indian to do so, the list could end up with more than a million names. So your hypothesis that we import corrupt practices is abject trash if not anything worse.
Sir, the thing you call our “spectacularly” failed society, might be something you would like to revisit. I guess you were alluding to the economic backwardness of my country or my society. Well sir, it would be a great pleasure for me to let you know that every single facet of my society is thriving and continues to look forward even when a country called “USA” wasn’t existent on the face of the earth. Now, that comment from some of the most fantastic,well-mannered and educated Americans like my bosses would have been insulting, but from your tone, I would give it the least heed since you sir do not understand the meaning of respecting other ethnicities or cultures. So stop complaining and please grow up.

May 23, 2012 5:00pm EDT  --  Report as abuse
debug22 wrote:
Dear sir, please look up Rajat’s achievements on wikipedia and then accuse him of being part of some “mass immigration”. America has benefited massively from his presence here. Even the truly great are capable of lapses of judgement – the courts will decide on his guilt, not you or me – but please do not drag in the immigration issue into this debate (or indeed, confuse legal and illegal immigration).

If you knew how difficult, time-consuming and expensive it is now to immigrate here legally, you wouldn’t use such language. Foreign enrollment at US univs is sharply dropping due to the regulations and quotas and not being able to get visa sponsorship after graduation – so you will probably get your wish in the future. Ironically tech honchos like Bill Gates are the ones vociferously opposing the current policies slowing down legal immigration — they know that the influx of the best and brightest got the whole tech boom started in the first place.

May 23, 2012 5:14pm EDT  --  Report as abuse
niraj264 wrote:
Mr Torquil,
I think you need to grow up. I am also an India born U.S. ctizen. I think we show dignity to other people, contry and culture, and that’s our American way. I don’t know how someone can call self American forgetting these values.

May 23, 2012 5:35pm EDT  --  Report as abuse
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