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Goldman CEO testifies that ex-board member was privy to secrets

Lloyd Blankfein tells a jury that Rajat Gupta knew about discussions about earnings and possible acquisitions. Gupta is accused of insider trading.

June 05, 2012|By Andrew Tangel, Los Angeles Times
  • Former Goldman Sachs board member Rajat Gupta arrives at the federal courthouse in Lower Manhattan on Monday.
Former Goldman Sachs board member Rajat Gupta arrives at the federal courthouse… (Michael Nagle, Getty Images )

NEW YORK — — Lloyd Blankfein, Goldman Sachs Group Inc.'s chairman and chief executive, testified at former board member Rajat Gupta's insider-trading trial that Gupta was privy to company secrets that included acquisitions and earnings.

Blankfein said board members were not to speak about what transpired at board meetings, telling the jury Monday that "all parts of it were confidential." Gupta is accused of passing on information about Goldman to Galleon Group hedge fund manager Raj Rajaratnam, who was sentenced to 11 years in prison after his own trial last year.

The FBI caught Gupta telling Rajaratnam on a wiretap that Goldman was discussing acquiring a commercial bank during the height of the financial crisis in 2008. Gupta has pleaded not guilty, and his lawyers say that the government's case is speculative.

Blankfein said he regularly called Gupta with updates on the firm's financial performance — including when the firm suffered its first quarterly loss since becoming a public company — and other bombshell developments, such as legendary investor Warren Buffett's infusion of $5 billion into the firm during the financial crisis.

Gupta also knew about discussions of possibly acquiring commercial banks and even troubled insurance giant American International Group Inc. in mid-2008, Blankfein testified. AIG teetered later that year and required a massive government bailout.

Jurors also heard testimony about how Gupta tried to leave Goldman's board in 2008, but the deepening financial crisis led Blankfein to ask him to stay. Gupta remained on the board two more years.

From his seat at the defense table in a wood-paneled courtroom on the 14th floor of the federal courthouse in Lower Manhattan, Gupta locked his eyes on Blankfein as he strode to the witness stand early Monday afternoon.

The two appeared to acknowledge each other as Blankfein left the courtroom, but the Goldman chief saved a smile and greeting for a courtroom sketch artist he seemed to recognize.

Although Gupta's alleged crimes stem from the financial crisis, prosecutors have not accused him of contributing to the turmoil or ensuing Great Recession. Gupta's trial probably won't end critics' calls for prosecutions of high-level Wall Street executives for the financial crisis.

Blankfein spent three hours testifying to the most basic facts that helped prosecutors establish what Gupta knew and when, but also explain to the jury the rudiments of finance.

"Is that military time, Mr. Blankfein?" Assistant U.S. Atty. Reed Brodsky asked when reading a log of telephone calls among Goldman executives and board members.

"Better be," Blankfein responded, smiling to laughter in the packed courtroom.

Blankfein also played the role of finance professor. Asked what it meant when Goldman posted record profits one quarter, he said: "That means it's better than it's ever been before."

As for analysts' recommendations to buy, hold or sell stocks, Blankfein said: "'Sell' means he's not liking our stock."

As Gupta's chief lawyer, Gary Naftalis, argued with prosecutors in a sidebar, Blankfein had to sit and wait just like everyone else. He fidgeted. He adjusted his red tie and charcoal pinstripe suit. At various times he flashed grins toward the jury and reporters.

Blankfein will probably find himself back in U.S. District Judge Jed Rakoff's courtroom later this week as prosecutors continue their questions and Naftalis begins his cross-examination, even if that conflicts with Blankfein's daughter's graduation from high school Wednesday.

Rakoff said he couldn't guarantee Blankfein would make the graduation ceremony. Blankfein said that after the ceremony his family planned to have lunch at a restaurant in Yonkers, near Rakoff's residence.

Careful not to reveal where they would dine, Blankfein told the judge he may know the place.

"If it's the one I'm thinking of," Rakoff said, "I can't afford it."

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