Gupta trial: Closet call and promotional fund meetings

NEW YORK Thu May 31, 2012 4:59pm EDT

Rajat Gupta, a former Goldman Sachs Group Inc and Procter & Gamble board member, arrives at Manhattan Federal Court in New York, May 29, 2012. REUTERS/Andrew Burton

Rajat Gupta, a former Goldman Sachs Group Inc and Procter & Gamble board member, arrives at Manhattan Federal Court in New York, May 29, 2012.

Credit: Reuters/Andrew Burton

NEW YORK (Reuters) - To convict former Goldman Sachs Group Inc board member Rajat Gupta of insider trading, prosecutors must convince the jury he benefited from his relationship with Raj Rajaratnam, the now-imprisoned hedge fund manager he is accused of tipping.

On Thursday, the prosecution put on the witness stand a former marketing manager at Rajaratnam's Galleon Group who testified that he participated in meetings in the United Arab Emirates with Gupta to promote Galleon funds to potential investors.

The jurors in the U.S. District Court trial in New York were also given another glimpse into the secrecy of one of the corporate deals at the center of case. A Goldman Sachs executive said he made a critical telephone call from a janitor's closet during a New York Yankees baseball game.

"I introduced him the way he was introduced to me, the new chairman of Galleon International," Ayad Alhadi, the former Galleon managing director of marketing, testified.

He said he and Gupta attended meetings with banks and pension funds on March 31 and April 1, 2008, in Abu Dhabi.

Asked by prosecutor Reed Brodsky whether Gupta said anything about Rajaratnam in the meetings, Alhadi said: "Yes ... it was a positive opinion of his investment capabilities."

According to prosecutors, Rajaratnam appointed Gupta chairman of Galleon International in 2008 and awarded him an ownership stake. But under questioning later by a defense lawyer, Robin Wilcox, Alhadi said he "never received notice that it was consummated."

Gupta, 63, has pleaded not guilty to charges of providing Rajaratnam with boardroom secrets between March 2007 and January 2009 while he was a director at Goldman Sachs and Procter & Gamble Co. His lawyers say the government's case is circumstantial and speculative and that Gupta had nothing to gain financially by giving inside stock tips to Rajaratnam, his onetime friend and business associate.

The defense also says the two men had a falling-out in 2008. Rajaratnam was convicted a year ago and is serving an 11-year prison term.

During a jury break, Brodsky told the judge that Goldman Sachs Chief Executive Officer Lloyd Blankfein would testify at the trial, most likely next week. Blankfein testified at Rajaratnam's trial in March last year, telling jurors that Gupta violated his duties of confidentiality by discussing aspects of a June 2008 Goldman board meeting with Rajaratnam. Their phone conversation was secretly-recorded by the FBI.

Last week at the Gupta trial, Goldman director Bill George testified that he had declined Gupta's invitation to invest in a fund called New Silk Route that Gupta founded with Rajaratnam.

On Thursday, another witness from Goldman testified for the prosecution. Stephen Pierce, a managing director, said he sought out a janitor's closet at Yankee Stadium on September 21, 2008, to secure confidentiality when a management committee meeting was convened at short notice.

It was among the crucial and secret discussions during the financial crisis when Goldman decided it needed to raise as much as $10 billion, Pierce testified. Two days later, renowned investor Warren Buffett's Berkshire Hathaway Inc injected $5 billion into Goldman, a major boost for the investment bank.

"It was extremely confidential," Pierce said on the witness stand.

One of the charges against Gupta is that he told Rajaratnam within minutes of the Goldman board approving the investment and the fund manager hurriedly ordered his traders to buy the stock [ID:nL1E8GN8Q1].

A spokesman for Goldman was not immediately available for comment on Blankfien. Goldman is not accused of any wrongdoing.

GUPTA-RAJARATNAM INVESTMENTS

Through Alhadi's testimony, prosecutors want to further their argument that, because Gupta and Rajaratnam had tens of millions of dollars invested together, it stands to reason that Gupta benefited.

In other evidence last week, the government played an FBI wiretap of the two men discussing their investments in July 2008.

Gupta and Rajaratnam had numerous business dealings together, according to court documents. From 2003 to August 2005, Gupta had money invested in at least two different Galleon offshore funds through an offshore entity that Gupta created.

The two men formed a fund called Voyager Capital Partners. Gupta put in $10 million and Rajaratnam $40 million. Certain Voyager assets were invested in Galleon hedge funds and Galleon International had $1 billion by the end of 2007.

To convict Gupta of insider trading, the jury must be convinced beyond a reasonable doubt that he breached his fiduciary duties and that he did it intentionally and in anticipation of at least some modest benefit in return.

The trial started on May 21 and is expected to last three weeks.

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 Gerald E. McCormick, Matthew Lewis and Andre Grenon)

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