Ex-Goldman Board Member Faces Jury


Barely a day went by at the insider-trading trial of multimillionaire hedge-fund founder Raj Rajaratnam a year ago without mention of Rajat Gupta, a boldface name in business and charity circles.

On Monday in the same federal court in New York, it will be Gupta's turn to go on trial. The former Goldman Sachs Group Inc (NYSE:GS) and Procter & Gamble (NYSE:PG) board member is accused of leaking stock secrets to Rajaratnam, his erstwhile friend and business associate who was convicted and is now in prison.

But while prosecutors have called Gupta the "illegal eyes and ears" for Rajaratnam, this is a very different case. At Rajaratnam's trial, jurors spent weeks listening to the Galleon Group founder discussing stock trades on calls secretly recorded by the FBI. With Gupta, prosecutors have no direct conversations on tape related to the trades central to their case.

One of the government's core allegations is that Gupta tipped Rajaratnam to Berkshire Hathaway Inc's <BRKa.N> <BRKb.N> $5 billion investment in Goldman during the 2008 financial crisis and Goldman's surprise fourth-quarter loss that year.

Gupta, 63, has pleaded not guilty. His lawyers have argued that others may have leaked information about Goldman to Galleon and that Gupta, who once led management consultant McKinsey & Co, had no reason to illegally spill corporate secrets.

"This is a classic reasonable doubt case," said Tom Dewey, a partner at law firm Dewey Pegno & Kramarsky in New York, who is not involved in the case. "The core defense message will be: 'There is just not enough evidence.'"

Gupta also is charged with providing non-public information to Rajaratnam in 2008 and 2009 about P&G.

A jury of 12 and four alternates will be chosen on Monday for the trial before U.S. District Judge Jed Rakoff, who expects it to last about three weeks. Opening arguments from Assistant U.S. Attorney Reed Brodsky and defense lawyer, Gary Naftalis, could start later Monday.

Gupta is charged with five counts of securities fraud and one count of conspiracy. If convicted, he faces up to 25 years in prison, though such a long sentence would be unlikely. Rajaratnam was handed an 11-year term in October, the longest for insider trading in the United States, after being overwhelmingly convicted on 14 criminal counts.


Gupta, the most prominent person indicted in the government's insider-trading crackdown, has had a remarkable fall from grace. Born in India, he earned an MBA from Harvard Business School and spent 34 years at McKinsey, serving as its global head for nine years. He retired in 2007.

He joined Goldman's board in 2006 and left in May 2010, seven months after Rajaratnam's arrest. Gupta, who was arrested last October, was also formerly a director at P&G and American Airlines Corp.

Naftalis has touted Gupta's charity, particularly his work to combat AIDS, malaria and tuberculosis, to rebut any possible government argument that he was motivated by money.

"He has had a wonderful, blameless life and out of the clear blue sky in the seventh decade of his life he decides to become a criminal?" Naftalis said at a pre-trial hearing.

Naftalis fought unsuccessfully to exclude three wiretaps between Rajaratnam and two traders that could implicate Gupta. But the judge said his ruling was not final.

Naftalis has not said if Gupta will testify in his own defense. Some high-profile witnesses could take the stand including Goldman Chief Executive Lloyd Blankfein, who also testified at the Rajaratnam trial as a government witness and said Gupta breached his fiduciary duty to the investment bank.

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