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Insider-trading trial of former Goldman director gets underway

Rajat Gupta helped hedge fund manager Raj Rajaratnam make $1 million by sharing secret information about Goldman Sachs, prosecutors say in opening statements. Gupta's lawyer says he never cheated anybody.

May 22, 2012|By Andrew Tangel, Los Angeles Times

— — NEW YORK Shortly after Goldman Sachs Group Inc.'s board learned of famed investor Warren Buffett's $5-billion lifeline at the height of the financial crisis, then-director Rajat Gupta phoned hedge-fund manager Raj Rajaratnam.

Rajaratnam, a federal prosecutor said Monday, then used that information when he snapped up Goldman stock before the deal was announced in September 2008. Prosecutors said Gupta helped Rajaratnam make $1 million in just six minutes with the help of illegal inside information.

"This was big news," Assistant U.S. Atty. Reed Brodsky told jurors in the opening statements of Gupta's trial in federal court in Manhattan, that "the average ordinary investor didn't know."

Such alleged illicit tips are at the heart of the government's case against Gupta, the highest-profile Wall Street figure to be ensnared in a sprawling insider-trading scheme that Rajaratnam is accused of orchestrating.

"He used those secrets to help his friends," Brodsky said of Gupta, who had access to confidential information in his role as a director of Goldman as well as consumer products giant Procter & Gamble Co.

Rajaratnam, who headed the hedge fund Galleon Group, was sentenced last year to 11 years in prison.

Gupta's trial, which U.S. District Judge Jed Rakoff said may last until June 15, could feature a star-studded cast of financial tycoons, including Buffett and Goldman Chief Executive Lloyd Blankfein.

Although many of the alleged crimes took place from 2007 to 2009, Gupta is not on trial for crimes related to the financial crisis' cause. But the government's allegations portray a seedy side of American high finance in which the well-connected elites rig the game for themselves, to the disadvantage of average investors.

On Monday, Brodsky laid out the federal government's case against Gupta in a packed wood-paneled courtroom overlooking a rainy and foggy Lower Manhattan. Evidence includes phone calls recorded by the FBI.

But Gary Naftalis, Gupta's lawyer, countered in his opening remarks that the government doesn't have Gupta himself on tape passing illicit tips. Nor, he said, does the government have Gupta mentioned on any recorded calls.

"You'll hear no such evidence," Naftalis said.

The government's case, Naftalis argued, is circumstantial, based on speculation, suspicion, hearsay and guesswork. He said the government has merely strung together "innocent, unconnected facts" and spun them to bring a case against Gupta.

Rajaratnam could have gotten the tips elsewhere, Naftalis suggested, because he was a wired-in Goldman client who had access to top Goldman executives such as President Gary Cohn.

Naftalis, who noted Gupta's philanthropy in public health and education, said of his client: "He never defrauded anybody. He never cheated anybody. The evidence will show Mr. Gupta acted honestly and in good faith."

Gupta, 63, sat stoically with his hands clasped on his lap while his lawyer outlined his defense. He was indicted on charges of securities fraud and conspiracy in October.

Times staff writer Stuart Pfeifer contributed to this report.

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