* Ex-Goldman board member Rajat Gupta on trial next week
* Charged in insider-trading conspiracy with Rajaratnam
By Grant McCool
NEW YORK, May 16 Convicted hedge fund founder
Raj Rajaratnam is in prison, but the jurors of a separate
insider trading trial of former Goldman Sachs Group Inc
and Procter & Gamble Co board member Rajat Gupta will
hear his voice in court on FBI wiretaps.
A federal judge in New York made a preliminary ruling on
Wednesday to allow prosecutors to play a recorded telephone
conversation from July 29, 2008, between Rajaratnam and Gupta,
whose trial starts next Monday.
Over defense objections, U.S. District Judge Jed Rakoff said
the 24 minute-long call was relevant as the "one and only direct
evidence of the telephone relationship between Mr Rajaratnam and
"It shows the nature of the relationship even if there is
nothing improper on the call," Rakoff said at the final
Gupta, the most prominent corporate figure indicted in a
U.S. government crackdown on insider trading at hedge funds in
recent years, is heard telling Rajaratnam that the Goldman board
discussed the firm's possible interest in acquiring a commercial
bank or insurance giant American International Group Inc
The information is not included in the charges against
Gupta. His main lawyer, Gary Naftalis, argued that Gupta was
"basically confirming a rumor" and Goldman customers, including
hedge funds, already knew about it from the firm's executives.
Galleon Group hedge fund founder Rajaratnam, 53, was
convicted a year ago on evidence largely based on court-approved
wiretaps of his phones. He is appealing the use of wiretaps as
he serves an 11-year prison term, the longest handed down for
insider trading in the United States.
Gupta, 63, was charged last October with five counts of
securities fraud and one count of conspiracy, allegations he
denies. His trial is expected to last three weeks. If convicted,
he could face up to 25 years in prison.
The first witness to be called on Monday or Tuesday will be
former Galleon secretary Karyn Eisenberg, U.S. prosecutor Reed
Brodsky said in court on Wednesday.
Prosecutors accuse the former corporate board member - he
also led the McKinsey & Co consultancy for nine years - of
giving Rajaratnam information from Goldman and Procter & Gamble
Co board meetings in 2007 and 2008. In addition to sitting on
the Goldman board, Gupta also was a director at P&G.
Gupta contends he lost money investing with Rajaratnam and
that as many as four other Goldman personnel could have tipped
off Galleon with the company's confidential information.
RAJARATNAM CALLS WITH TRADERS
At Wednesday's hearing, the judge also gave tentative
approval to prosecutors to present three telephone call
recordings between Rajaratnam and two Galleon traders in
September and October 2008.
Rakoff said the ruling was not final. He said the three
calls "are admissible subject to connection in furtherance of
the alleged conspiracy between Mr. Gupta and Mr Rajaratnam."
The judge said the government runs the risk that, if the
connection is not made, there is potential for a mistrial.
During the trial, Gupta's lawyers have the right to ask the
judge to exclude government evidence.
Two of the three phone calls the government wants admitted
at trial were between Rajaratnam and his principal trader, Ian
Horowitz on Sept. 23, 2008. The other was with portfolio manager
David Lau on Oct. 23. There are no recordings of phone
conversations between Gupta and Rajaratnam on those dates.
Gupta's lawyers argue that the evidence against him is
circumstantial. Defense lawyer Naftalis argued that toll records
show brief phone connections between Gupta and Rajaratnam.
"There may not even have been a conversation," Naftalis said
in court on Wednesday. "We are dealing with speculation upon
Prosecutors say 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. The
government also accused Gupta of providing non-public
information about Smucker's acquisition of Folgers from P&G in
The case is USA v. Gupta, U.S. District Court for the
Southern District of New York, No. 11-907.