Rajat Gupta insider trading trial begins

Goldman Sachs director allegedly tipped Raj Rajaratnam

Rajat Gupta Rajat Gupta

May 21 (Bloomberg) -- Rajat Gupta, who was a director at Goldman Sachs Group Inc., “threw away his duties” to the company when he tipped hedge-fund co-founder Raj Rajaratnam to news that the bank would get a $5 billion investment, a prosecutor told jurors.

At the start of Gupta’s insider-trading trial, Assistant U.S. Attorney Reed Brodsky told the jury that Gupta broke the law when, immediately after a Goldman Sachs board meeting on Sept. 23, 2008, he informed Rajaratnam that Warren Buffett’s Berkshire Hathaway Inc. would invest in the firm. Rajaratnam, Gupta’s friend and co-founder of Galleon Group LLC, traded on the tip, Brodsky said.

“Gupta threw away his duties, threw away his responsibility and broke the law,” Brodsky said in his opening statement today in Manhattan federal court.

In the defense opening, attorney Gary Naftalis told jurors that Gupta was “innocent of the allegations,” that the prosecution’s claims “defy common sense” and that “no crimes” were committed. Even if there is evidence of leaks from Goldman Sachs, the tips didn’t come from Gupta, he said.

“Rajaratnam had sources all over town,” Naftalis said.

Gupta, who ran consulting firm McKinsey & Co. from 1994 to 2003 and also sat on the Procter & Gamble Co. board, is charged with conspiracy and securities fraud.

Procter & Gamble

Prosecutors say Gupta, 63, gave Rajaratnam material, nonpublic information about New York-based Goldman Sachs and Cincinnati-based P&G, the world’s largest consumer-products company. Securities fraud carries a maximum 20-year prison sentence. The first witness will testify tomorrow.

At the start of the trial, Brodsky told jurors about four alleged illegal tips Gupta passed to Rajaratnam from Goldman Sachs, including details of Goldman Sachs’s earnings in the first quarter of 2007 and fourth quarter of 2008, as well as the $5 billion investment by Berkshire Hathaway in September 2008, prosecutors said.

The leaks generated millions of dollars in profits for Galleon, Brodsky said.

Gupta also gave Rajaratnam secret information about P&G’s 2008 sale of its Folgers Coffee unit to J.M. Smucker Co., the prosecutor said.

Voyager Capital

Brodsky told jurors that Gupta and Rajaratnam had close financial ties, including a venture between the two men called Voyager Capital Partners. Gupta was so comfortable with Rajaratnam and Galleon that he had his own swipe card to enter Galleon’s offices, like an employee of the firm, he said.

Brodsky told jurors they will hear recorded wiretaps from Rajaratnam’s mobile phone, including a conversation in which he said he had been told, after the board meeting approving Buffett’s investment, that “something good is going to happen” to Goldman Sachs. Jurors will also hear from witnesses who pleaded guilty and are cooperating with the government in hopes of leniency, he said.

“This is a straightforward case of illegal insider trading,” Brodsky said, urging the jury to find Gupta guilty.

Naftalis told jurors that Gupta, orphaned as a teenager in India, rose to become “one of America’s most respected business leaders.”

“It defies common sense that in the twilight of an illustrious life, he’d decide to knowingly, willfully and deliberately to suddenly decide to become a criminal and do it for no benefit” Naftalis said. “He didn’t turn into a criminal in the seventh decade of his life.”

Next page: Hearsay Evidence

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