Published June 04, 2012
Goldman Sachs (GS) CEO Lloyd Blankfein told a Manhattan jury on Monday that former board member Rajat Gupta was present in key meetings where confidential corporate information was discussed.
Gupta, an Indian-born businessman, is accused of leaking boardroom secrets to hedge fund manager Raj Rajaratnam between March 2007 and January 2009 while he was director at Goldman and Proctor & Gamble Co. (PG).
Blankfein also spoke about the company's policies for safeguarding confidential information. Blankfein had been scheduled to testify June 6 but took the stand earlier because of a scheduling conflict with his daughter's graduation.
Court is not in session Tuesday.
Gupta is charged with one count of conspiracy and five counts of securities fraud. If convicted, he faces up to 25 years in prison.
Prosecutors say Gupta tipped the Galleon fund co-founder about a Sept. 23, 2008 deal that gave Goldman a $5 billion boost from Warren Buffett’s Berkshire Hathaway at the height of the financial crisis. They also say Gupta told Rajaratnam on Oct. 23, 2008 that Goldman was going to report its first-ever quarterly loss before the news was made public.
Gupta denies any wrongdoing. His lawyers argue that Rajaratnam had a network of sources providing him with inside information and that the evidence against Gupta is circumstantial and speculative. They also say Gupta had no financial motive to provide Rajaratnam with confidential information and point to Gupta losing his entire $10 million investment in Rajaratnam’s Voyager Capital Partners Ltd. fund as proof.
Last year, Blankfein also testified for the government at Rajaratnam’s insider-trading trial. During his testimony, he told jurors Gupta violated Goldman’s confidentiality policy by sharing secrets with Rajaratnam.
Earlier Monday, the prosecution finished up its questioning of Anil Kumar, Gupta’s protégé at McKinsey & Co. Kumar, a former director at the global management consulting firm, began his testimony on June 1.
He avoided Gupta’s gaze as he described in a monotone voice the history of business dealings he facilitated between the two men. Kumar was a key witness for the prosecution because he was able to discuss the nature of their relationship. Thirty years ago Kumar and Rajaratnam were classmates at University of Pennsylvania’s Wharton School. Kumar became close with Gupta in 1997 when they co-founded a business school in India. Kumar introduced Gupta to Rajaratnam in 2006.
The government has argued Gupta and Rajaratnam were close friends and that their chummy relationship blurred legal lines and led to securities fraud. The defense says the two men had a strained business relationship after Gupta lost millions in a fund managed by Rajaratnam in 2008. Kumar testified Monday that the falling out happened in early 2009, after the last alleged instance of insider trading.
Like many of the other Galleon fund-related defendants, Kumar was caught on tape spilling company secrets. He pleaded guilty in early 2010 to one count of securities fraud and one count of conspiracy. He will be sentenced later this year. Kumar also testified at Rajaratnam’s criminal trial last year as a cooperating witness for the government in hopes for leniency in his sentence.
A conviction against Gupta would send a strong message on a global scale. At McKinsey, Gupta advised some of the world's most influential people, rubbing elbows and socializing with the likes of General Electric (GE) CEO Jeffrey Immelt and former President Bill Clinton.
Until Gupta, Rajaratnam had been the biggest catch in the government’s multi-year investigation into insider trading. Rajaratnam was found guilty on 14 criminal charges in 2011 and sentenced to 11 years in prison – the harshest punishment for this type of crime in U.S.
history. Since August 2009, federal prosecutors in Manhattan have charged 68 individuals with insider trading, resulting in 61 convictions or guilty pleas. So far, about half have been sentenced.
Unlike past Galleon-related trials where the government relied on hours and hours of wiretaps and recordings to make its case, they have not had the same evidence against Gupta. Calls between Rajaratnam and Gupta were not taped. Instead, prosecutors have used recorded calls between Rajaratnam and his employees that imply Gupta was his inside source.
Gupta’s trial started May 21 and is expected to wrap up in mid-June.