A second “insider” at Goldman Sachs Group Inc. (GS) allegedly leaked tips to hedge fund manager Raj Rajaratnam, U.S. prosecutors told the judge presiding over the case of former Goldman Sachs director Rajat Gupta.
The government’s disclosure about another Goldman Sachs tipster for Rajaratnam, who was convicted of insider trading in May, came during yesterday’s arraignment of Gupta on revised insider-trading charges that broaden the scope of the alleged conspiracy. Gupta, 63, pleaded not guilty.
Assistant U.S. Attorney Reed Brodsky submitted a Feb. 3 letter to the court describing “certain witness statements relating to an insider at Goldman Sachs & Co. who provided information to Raj Rajaratnam that did not relate to Goldman and/or Procter & Gamble.”
U.S. District Judge Jed Rakoff in Manhattan, who is overseeing Gupta’s case, told lawyers yesterday that he reviewed the statements in the Feb. 3 letter and agreed with prosecutors to keep them under seal because the alleged tips weren’t related to any of the charges against Gupta.
“They have nothing to do with any issue in this case, directly or indirectly, and therefore do not need to be disclosed,” Rakoff said.
Goldman Sachs Earnings
Gupta, the one-time McKinsey & Co. leader and former director at Procter & Gamble Co., was accused in October by Manhattan U.S. Attorney Preet Bharara of passing inside information to Rajaratnam, co-founder Galleon Group LLC. The U.S. says Gupta tipped Rajaratnam about Goldman Sachs and P&G earnings.
The revised indictment expanded prosecutors’ description of the insider-trading scheme, saying it began in March 2007, not in 2008, as the U.S. alleged when Gupta was first charged in October.
Gupta’s lawyer, Gary Naftalis, has asked the government to share any evidence that Rajaratnam had an inside source at Goldman Sachs other than his client.
The defense lawyer said he’s seeking the evidence to show at the trial that the other source is the culprit, not Gupta. Rakoff also pressed prosecutors to name the purported source, whom he called “Mr. X.”
The existence of a second Goldman Sachs tipster constitutes “real exculpatory information for a real defense that the source of any information here is not us but somebody else,” Naftalis argued at a Jan. 20 hearing before Rakoff.
David Wells, a spokesman for Goldman Sachs, declined to comment yesterday on the government’s letter to the court. Naftalis declined to comment on yesterday’s hearing after court.
Rakoff yesterday granted a request by Gupta’s lawyers to delay the trial until May 21 from an April 9 trial date the judge set last year.
Also yesterday, Brodsky told Rakoff that the government may seek to file yet another indictment adding new allegations that Gupta passed tips. Rakoff denied that request.
“The investigation continues,” Brodsky said. “We hope to get more time to get more charges against Mr. Gupta.”
‘Cows Come Home’
Naftalis objected to prosecutors adding new allegations.
“What the government is doing here now is wildly expanding what everybody in the world believed the case to be about,” he said. “I really think it’s quite unfair. They can investigate my client ‘til the cows come home.”
The judge told prosecutors he won’t allow them to file any additional charges against Gupta. He also said that with six additional weeks to get ready for trial, no further delays will be allowed, “barring an act of God.”
Gupta’s lawyers are scheduled to return to court on Feb. 16 for a joint hearing with prosecutors and the U.S. Securities and Exchange Commission. At issue is whether the SEC, which sued Gupta in October on the same day his indictment was unsealed, must surrender to Gupta documents that defense lawyers claim may help establish his innocence.
Gupta now faces six counts of securities fraud and one count of conspiracy. In the new indictment, prosecutors added a charge based on a March 12, 2007, conference call in which people discussed Goldman Sachs’s pending earnings announcement. Gupta tipped Rajaratnam after listening to a Goldman Sachs board meeting while at Galleon’s offices, the U.S. said.
Prosecutors said that while the judge won’t allow them to further revise their indictment, they may still seek to introduce evidence at Gupta’s trial of other acts of alleged wrongdoing.
Gupta faces as long as 20 years in prison if convicted of any of the securities fraud charges and as long as five years if convicted of conspiracy. He also faces a fine of as much as $5 million, prosecutors said.
Prosecutors said Gupta’s investments with Rajaratnam -- $10 million and an ownership stake in at least two funds -- gave him the motive to engage in insider trading.
Rajaratnam, who was convicted by a jury last year of all 14 counts against him, is serving an 11-year prison term.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
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