Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd Blankfein checks his bank’s profit daily, prefers voice mail to e-mail and makes unscheduled calls to board members at times of market “uncertainty.”
His testimony at the insider trading trial of Raj Rajaratnam was intended by prosecutors to show how one of those board members, Rajat Gupta, who served in 2007 and 2008, passed on information he learned from the board. Blankfein’s 3 1/2 hours on the witness stand yesterday before a packed Manhattan federal courtroom also included a few questions about the CEO’s personal life.
“Where did you grow up?” Assistant U.S. Attorney Andrew Michaelson asked Blankfein, who wore a blue tie, dark suit and white shirt. “Brooklyn,” the 56-year-old CEO replied.
“Where did you go to high school?” Michaelson asked. “Thomas Jefferson High School, East New York, Brooklyn,” Blankfein said.
No other witness during the three-week trial has been asked such questions. Prosecutors painted a picture of a CEO who grew up in an outer borough of New York City to eventually run the fifth-biggest U.S. bank by assets. Along with asking him about his roots, Michaelson explored his management style.
Blankfein, who responded in a deferential fashion, testified he checks the firm’s “p-and-l,” or profit and loss, daily and relies mainly on voice mail. In times of market stress, he said he likes to have one-on-one conversations with board members. An e-mail shown to jurors referred to such talks as “just-checking-in-calls.”
Even Blankfein’s reading habits were explored. Rajaratnam’s defense lawyer, John Dowd, asked Blankfein whether he was a daily reader of the Wall Street Journal.
“Sometimes I do,” Blankfein testified, before hurriedly adding, “Often I do. But not always.”
Most of his testimony, which concluded this afternoon, was devoted to his conversations with Gupta, 62. Blankfein told jurors he briefed his board on the bank’s losses in October 2008 -- the first losses ever, he said -- and the $5 billion investment in the bank by Warren Buffett’s Berkshire Hathaway Inc. at about the same time.
“Was it big news or small news for Goldman Sachs?” Michaelson asked.
“Big news,” Blankfein replied.
“Was the news confidential?” the prosecutor asked.
“Yes,” the CEO said.
Lawyers and Executives
Some two dozen reporters scribbled notes as the CEO testified, with an equal number of audience members, many in business suits, watching him as well. Prosecutors contend Gupta, who hasn’t been charged with a crime and has denied any wrongdoing, related board discussions to Rajaratnam, who then allegedly traded on them.
Rajaratnam, 53, is the central figure in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from tips leaked by corporate insiders such as Gupta. He denies wrongdoing, saying he based trades on research.
Along with Goldman Sachs’s outside lawyer Karen Seymour, and other attorneys for the bank, also in attendance for Blankfein’s testimony was Manhattan U.S. Attorney Preet Bharara and the chief of his securities fraud bureau, Christopher Garcia.
As Blankfein spoke, Rajaratnam sat among two rows of defense lawyers. He listened quietly, reading documents posted on a video screen and staring at the witness.
Blankfein rarely looked at the hedge fund manager, even when he testified that he visited New York-based Galleon “a long time ago” when he was vice-chairman of Goldman Sachs.
Under questioning by Dowd, Blankfein confirmed Galleon was an important client of Goldman Sachs and that the firm ranks its clients based on “who’s relatively more important and less important.” The CEO said he was “not sure” whether Galleon was considered a “tier one” client.
Blankfein hesitated slightly at times during his testimony. Asked about the New York-based bank’s performance in October 2008, amid what he said was the great “uncertainty” of the credit crisis, he responded haltingly.
“We were losing -- er, we were losing money,” he said. “We generally made money.”
He also briefly shared his view of Goldman Sachs’s function. Asked by the prosecutor about the bank’s market-making business, Blankfein said, “We’re like a middleman.”
“It’s a service we do for the world,” the CEO testified.
He then changed the last two words to “our clients.”
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court for the Southern District of New York (Manhattan).
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