* US: Tapes to show conspiracy between Rajaratnam, Gupta
* US: Rajaratnam got tips on Goldman earnings, Buffett
(New throughout, adds comments, details on hearing)
By Grant McCool and Jonathan Stempel
NEW YORK, March 4 Goldman Sachs Group Inc
(GS.N) is being drawn into the criminal trial of one-time hedge
fund billionaire Raj Rajaratnam, as prosecutors plan to show an
insider-trading conspiracy involving a former director at the
Wall Street bank.
Prosecutors intend to introduce audiotapes showing that
Rajaratnam got inside tips from his friend Rajat Gupta, who sat
on Goldman's board until last May. The trial of Rajaratnam, who
was head of the Galleon Group hedge fund, starts next Tuesday
in the highest profile Wall Street insider-trading case in a
At a court hearing on Friday, prosecutors said the leaks
include details about a $5 billion investment by Warren
Buffett's Berkshire Hathaway Inc (BRKa.N) (BRKb.N) in Goldman
at the height of the financial crisis in September 2008.
Goldman has not been accused of wrongdoing. The bank's
chief executive, Lloyd Blankfein, has agreed to testify for the
government, the Wall Street Journal reported on Friday.
Prosecutors first indicated they were looking at possible
improper trades in Goldman shares by Rajaratnam nearly a year
ago. Rajaratnam is also accused of illicit trades in stocks
including Google and eBay.
On Tuesday, the U.S. Securities and Exchange Commission
announced civil insider-trading claims against Gupta, saying
Rajaratnam reaped about $17.5 million on Goldman trades based
on the board member's tips. Gupta is a former worldwide
managing director at the consulting firm McKinsey & Co.
"I take it the government is going to present evidence that
Mr. Gupta is a co-conspirator?" U.S. District Judge Richard
Holwell asked Assistant U.S. Attorney Jonathan Streeter in
Manhattan federal court.
"Yes," Streeter replied. "That evidence we think
establishes Gupta was a co-conspirator."
Gupta has not been criminally charged. His lawyer, Gary
Naftalis, said his client has done nothing wrong. "These
allegations first made by the SEC are totally baseless," he
The 14-count indictment against Rajaratnam includes charges
of securities fraud and conspiracy. He once managed as much as
Prosectors' use of wiretaps has been a hallmark of the U.S.
hedge fund insider-trading probe, which has resulted in more
than two dozen arrests and at least 19 guilty pleas.
Rajaratnam is the central figure in the probe. Prosecutors
have said they may present 173 intercepted phone conversations
as evidence in the trial.
HURRIED CALLS AFTER BOARD MEETINGS, U.S. SAYS
In court, Streeter said prosecutors have evidence that
Gupta at least twice called Rajaratnam within minutes after
Goldman board meetings ended, leading to Rajaratnam trading in
He pointed to an instance in October 2008 when Gupta
allegedly contacted Rajaratnam to tell him Goldman was on pace
to lose money in its fiscal fourth quarter.
Streeter said Rajaratnam sold his entire stake in Goldman
early the next day. Goldman did ultimately post a loss for that
quarter, its first since going public.
While the indictment does not refer to all the possible
evidence concerning Goldman, prosecutors may be entitled to
introduce it, according to Charles Weisselberg, a law professor
at the University of California at Berkeley.
"The government has some latitude to bring up acts not
specifically listed in the indictment, but which may further
the conspiracy, so long as it does not depart so far from the
conspiracy as to prejudice the defendant," he said.
Among the earliest government witnesses is expected to be
Anil Kumar, a former McKinsey consultant who pleaded guilty in
January 2010 to leaking tips about a possible merger to
Rajaratnam, in return for $1.75 million.
Rajaratnam and his lawyers declined to comment after the
"He's a good man," one of his lawyers, John Dowd, said as
he patted the smiling Rajaratnam on his upper chest while they
rode down a courtroom elevator.
The case is U.S. v. Rajaratnam, U.S. District Court,
Southern District of New York, No. 09-01184.
(Reporting by Grant McCool and Jonathan Stempel; Additional
reporting by Dena Aubin and Basil Katz; editing by Gerald E.
McCormick, Dave Zimmerman, Gary Hill)