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.
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
Naftalis assailed a government case that he said was based on hearsay. After thousands of hours of wiretaps on Rajaratnam’s phones over 10 months, prosecutors never once heard Gupta directly tipping Rajaratnam, he said.
“They’re presenting a case based on speculation, a case based on guesswork, a case based on suspicion,” he said. “There is an absence of real, hard, direct evidence.”
Naftalis said Gupta had no motive to tip Rajaratnam, who lost Gutpa’s entire $10 million investment in Voyager and took $40 million in fees and redemptions from the fund without Gupta’s knowledge, he said.
Naftalis added that Galleon frequently traded in Goldman Sachs stock and that what the prosecutors have done in this case was “cherry-pick” trades supporting their theory. Gupta had “perfectly legitimate” reasons to speak to Rajaratnam, he said.
Earlier in the day, both sides selected 12 jurors and four alternates, including a psychiatric nurse whose husband works for Bank of America Corp., a professor of strategic design and behavior, an occupational therapist, a fourth-grade teacher, an executive at a nonprofit organization, a freelance beauty consultant and the president of a consulting firm.
The jurors, eight women and four men, are from Manhattan, the Bronx and Westchester and Rockland counties.
Witness testimony is scheduled to begin tomorrow with Caryn Eisenberg, who was Rajaratnam’s personal assistant. Brodsky told Rakoff today that the government intended to call former Goldman Sachs banker Byron D. Trott, who helped arrange the Buffett deal, to the stand May 23. William George, an outside director at Goldman Sachs, would be called May 24, Brodsky said.
The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Fred Strasser, Mary Romano