* Rajat Gupta denies insider-trading charges
* Current Goldman director set to testify for prosecution
* Former Goldman banker also on list to take witness stand
* U.S. jury could hear wiretaps of Rajaratnam and traders
By Grant McCool
NEW YORK, May 21 (Reuters) – A former Goldman Sachs Group
Inc board member “threw away his duties” in divulging
secrets about the investment bank to now-imprisoned hedge fund
manager Raj Rajaratnam, a U.S. prosecutor said at the start of a
major insider-trading trial on Monday.
Rajat Gupta, once a boldface name in business and charity
circles, is the most prominent corporate executive charged in
the U.S. government’s crackdown on insider trading. He has
denied the charges, and his lawyer says that prosecutors have no
direct evidence to win a conviction.
Gupta, 63, is accused of leaking stock secrets to
Rajaratnam, his erstwhile friend and business associate.
Rajaratnam, founder of the Galleon Group, was convicted of
insider trading last year.
The case “is about this man,” Assistant U.S. Attorney Reed
Brodsky said in his opening statement in Manhattan federal
court, gesturing toward Gupta with his left arm, “and how he
violated his duties and abused his position as a corporate
insider.”
As the prosecutor spoke, Gupta stared straight at him and
barely moved in his seat. His wife, Anita, and their four adult
daughters sat in the front row, also absorbed in the
proceedings.
Gupta, who also once led management consultant McKinsey &
Co, has pleaded not guilty to five counts of securities fraud
and one count of conspiracy.
His lawyer, Gary Naftalis, told the jury in his opening
statement that the prosecution had “no real, hard, direct
evidence” against his client.
“This is a case based on speculation, guesswork and
suspicion of what might have happened,” Naftalis said. He
reminded the jury that the burden of proof was high in a
criminal case and that the government had to prove each charge
beyond a reasonable doubt.
Naftalis has argued in pre-trial hearings that others may
have leaked information about Goldman to Galleon and that Gupta
had no reason to illegally spill corporate secrets.
Goldman will play a key role at the trial. One of the
government’s core allegations is that Gupta tipped Rajaratnam to
a $5 billion investment by Warren Buffett’s Berkshire Hathaway
Inc in Goldman during the 2008 financial
crisis and Goldman’s surprise fourth-quarter loss that year.
Brodsky told the jury it would hear evidence that on Sept.
23, 2008, Gupta called Rajaratnam 16 seconds after a special
Goldman board meeting approved the $5 billion investment.
Rajaratnam then ordered his traders to buy Goldman stock,
prosecutors contend. The investment boost to Goldman was not
made public or known to ordinary investors until after the
market closed that day, Brodsky said.
“It was against the rules for Gupta or anyone else who knew
to tell anyone else about it,” Brodsky said in his 45-minute
opening statement.
Goldman has not been charged with any wrongdoing in
connection with the case. Gupta is also charged with leaking
inside information to Rajaratnam while a board member at Procter
& Gamble Co.
The case is being heard by a jury of 12 people, including a
nurse, an executive of a non-profit organization, an elementary
school teacher and a physician’s assistant.
Before the jury was seated, Brodsky told Judge Jed Rakoff
that the government plans to call former Goldman banker Byron
Trott, a long-time Buffett confidant, and William George, a
director at the investment bank since 2002, as witnesses this
week.
Other witnesses who could take the stand during the trial
include Goldman Chief Executive Lloyd Blankfein, who testified
for the government at the Rajaratnam trial and said Gupta
breached his fiduciary duty to the investment bank.
TIES TO RAJARATNAM
If convicted, Gupta 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 convicted on 14 criminal counts.
Barely a day went by at Rajaratnam’s trial a year ago
without the mention of Gupta. But this is a very different case.
At Rajaratnam’s trial, jurors spent weeks listening to the
Galleon 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.
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.
Gupta, who was arrested last October, 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. In addition to his corporate
work, he became well known for his charity, including his work
to combat AIDS, malaria and tuberculosis.
The case is USA v. Gupta, U.S. District Court for the
Southern District of New York, No. 11-907.
