Ex-Goldman Board Member Gupta Took Fifth Amendment, Judge Told
Former Goldman Sachs Group Board Member Rajat Gupt
Seokyong Lee/Bloomberg
Former Goldman Sachs Group Inc. board member Rajat Gupta.
Former Goldman Sachs Group Inc. board member Rajat Gupta. Photographer: Seokyong Lee/Bloomberg
Former Goldman Sachs Group Inc. (GS) board member Rajat Gupta invoked his Fifth Amendment right not to incriminate himself when the U.S. Securities and Exchange Commission sought to question him, a prosecutor said.
Shortly before the start of proceedings yesterday in the insider-trading trial of Galleon Group LLC co-founder Raj Rajaratnam, Assistant U.S. Attorney Reed Brodsky asked whether the defense intended to introduce into evidence a submission that Gupta made to the SEC. Defense attorney John Dowd said he didn’t plan on telling jurors about the so-called Wells submission.
“In that Wells submission, Mr. Gupta took the Fifth Amendment when he spoke to the SEC,” Brodsky told U.S. District Judge Richard Holwell. Gupta “wasn’t deposed when the SEC asked for his deposition,” Brodsky said.
Gupta’s name has been mentioned almost daily at Rajaratnam’s federal court trial in Manhattan. Yesterday, Goldman Sachs Chief Executive Officer Lloyd Blankfein testified that he presented confidential information at board meetings attended by Gupta. Prosecutors claim Gupta leaked some of that information to Rajaratnam.
Rajaratnam, 53, is on trial 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 including Gupta. He denies wrongdoing, saying he based trades on research.
Buffett’s Investment
Blankfein testified yesterday that Gupta had confidential information about Warren Buffett’s $5 billion investment in Goldman Sachs in October 2008, Goldman’s earnings projections for that quarter and strategic discussions the firm had about acquiring a commercial bank or insurance company in late June 2008. Prosecutors allege that Gupta passed the tips to Rajaratnam, allowing him to make about $1 million for Galleon in September 2008 and avoid millions in losses the next month.
“We are a public company,” Blankfein said. “We don’t want information about our company to get outside before the time is appropriate. There is a process and a protocol for speaking to the outside world.”
For a second time in the trial, which began March 8, jurors heard a July 29, 2008, telephone call, secretly recorded by the FBI, in which Gupta told Rajaratnam that the Goldman board had discussed acquiring a commercial bank or an insurance company.
“Have you heard anything along that line?” Rajaratnam asked Gupta during the call.
“Yeah,” Gupta replied, “This was a big discussion at the board meeting.”
‘Important Contributions’
On cross-examination that lasted about an hour, John Dowd, Rajaratnam’s lawyer, questioned Blankfein about a Goldman Sachs press release announcing that Gupta wouldn’t stand for re- election as a board member in March 2010. Dowd asked Blankfein to read the announcement aloud to the jury.
In the release, Blankfein praised Gupta’s “important contributions to Goldman Sachs as a board member.”
Dowd asked whether, at the time he issued the statement, he was aware of the government’s allegations against Gupta.
“I had an awareness of some -- I want to say I had an inkling, subsequently I had more awareness,” he testified. “I knew there were questions about Rajat’s behavior, that’s how I would say it.”
At a sidebar conference in court, Dowd said that Blankfein “had a conversation with Gupta when this matter broke in the press” about a year ago “and asked him about it.”
Gupta’s Response
“I wouldn’t have had anything to do with that,” Gupta replied, according to Dowd.
There is no additional detail in court records about Gupta’s decision to invoke his Fifth Amendment rights under the U.S. Constitution, including when the SEC wanted to question him. Gupta’s lawyer, Gary Naftalis, has said in court papers that he made a Wells submission last month urging the agency not to file a lawsuit against his client.
“We repeatedly advised the SEC that Mr. Gupta was prepared to testify fully as soon as the Rajaratnam trial concluded,” Naftalis said yesterday in an e-mailed statement. “Regrettably, the SEC was unwilling to wait this brief period of time in order to have a full and fair factual record.”
On March 1, the SEC filed an administrative proceeding against Gupta, who hasn’t been criminally charged. On March 18, Gupta sued the SEC in federal court in Manhattan, denying the regulator’s allegations and asking a judge to block the administrative action and grant him a jury trial.
Hearsay Evidence
In such an SEC proceeding, the judge is allowed to consider hearsay, or evidence that may only be indirect or speculative.
Brenda Murray, the SEC’s chief administrative law judge, declined to stay the commission’s action, Naftalis told U.S. District Judge Jed Rakoff in New York at a March 22 hearing. Rakoff is presiding over Gupta’s lawsuit.
Murray scheduled a July 18 administrative trial for Gupta, Naftalis said, according to a court transcript of the hearing.
Naftalis told Rakoff that regulators should have sued in federal court instead of bringing the administrative action. Gupta, who prosecutors have called Rajaratnam’s co-conspirator, denied giving tips to the Galleon founder.
“By our count, 27 individual defendants have been sued in Galleon-related matters, every single one of them in federal court in New York,” Naftalis said, according to the transcript.
“So the only person who’s being singled out for disparate treatment, to his obvious detriment, is our client,” Naftalis said. “There is real discriminatory prejudice to us.”
Dodd-Frank Act
Naftalis said Gupta was entitled to a trial before a federal judge and jury, where the rules of evidence would allow him to receive evidence from the SEC. He also argued, referring to federal financial reform legislation passed last July, that the alleged insider trading cited by the SEC took place in June 2008 to January 2009, “at least 1 1/2 to 2 years before Dodd- Frank.”
Richard Humes, a lawyer with the SEC, told Rakoff he wasn’t sure that the judge had jurisdiction in the case.
Any appeal by Gupta of the SEC action would go before a federal appeals court and not before a district court judge, Humes said. “Even if he gets the ruling he is asking for, it doesn’t stop the rest of the proceedings,” Humes said.
Rakoff asked for lawyers on both sides to submit legal papers regarding his jurisdiction in the SEC matter, as well as whether the commission improperly brought the action.
“There seems to be an issue as to whether the relevant provisions of Dodd-Frank can be applied retroactively, when the effect arguably would be to deprive the plaintiff of the constitutional jury right they would otherwise enjoy,” Rakoff said, the transcript shows.
Equal Protection
“The legal issue is if you have -- what is it -- 24 defendants who are basically charged with wrongfully disclosing inside information in connection with same underlying case, 23 of them are charged in federal court where they have the right to a jury trial,” Rakoff said.
“And one of them is not and is charged only in an administrative proceeding,” Rakoff continued. “Does that implicate the equal protection clause of the Constitution as well as a jury trial clause of the Constitution?”
The criminal case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan). Gupta’s case is Rajat Gupta v. SEC, 11-CV-1900, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: David Glovin in Manhattan federal court at glovin@bloomberg.net; Patricia Hurtado in Manhattan federal court at phurtado@bloomberg.net; Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net
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