Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director indicted on insider trading charges, won a court order requiring prosecutors to share information from securities regulators that might help show he’s innocent and lost a bid to suppress wiretap evidence.
U.S. District Judge Jed Rakoff in New York, who is presiding over both Gupta’s criminal case and a parallel suit brought by the U.S. Securities and Exchange Commission, ordered the SEC to turn over memos and notes on interviews of 44 witnesses to prosecutors for review. Rakoff said that if prosecutors find evidence that can be used to exonerate Gupta, it must be turned over to the defense team.
“Where the government and another agency decide to investigate the facts of a case together -- such as in these 44 witness interviews -- the government has an obligation to review the documents arising from those joint efforts to determine whether” some material must be disclosed, Rakoff wrote.
Five pretrial rulings by Rakoff in the criminal case were made public yesterday, including one denying Gupta’s bid to dismiss three of the counts in his indictment on the grounds they were vague or duplicative.
In a separate filing, prosecutors disclosed additional details about their case against Gupta, who is accused of passing tips to Galleon Group LLC co-founder Raj Rajaratnam about earnings at Goldman Sachs and Procter & Gamble Co. (PG), where Gupta was also a director.
Prosecutors yesterday named two Galleon traders who they say participated in a conspiracy with Gupta and Rajaratnam. The names of six other alleged co-conspirators were redacted under the judge’s orders.
Gupta, the one-time McKinsey & Co. leader, was charged by Manhattan U.S. Attorney Preet Bharara’s office in October. He has pleaded not guilty and is scheduled to go on trial May 21. His lawyer. Gary Naftalis, declined to comment on Rakoff’s rulings.
Rajaratnam, who was convicted of insider trading by a jury last year, is serving an 11-year prison term.
In the prosecution filing, assistant U.S. attorneys Reed Brodsky and Richard Tarlowe named former Galleon trader Michael Cardillo, and Ian Horowitz, Rajaratnam’s personal trader, as two of the eight alleged co-conspirators in the insider-trading scheme.
Horowitz hasn’t been accused of wrongdoing. Cardillo, who pleaded guilty in January 2011 to securities fraud and conspiracy, testified at the trial of Zvi Goffer, a former Galleon trader, Emanuel Goffer and Michael Kimelman. Cardillo hasn’t been sentenced.
Prosecutors also said Gupta’s friendship and business relationship with Rajaratnam may have motivated him to pass tips to the hedge fund manager. After Gupta lost money in an investment with Rajaratnam, the U.S. said he continued to pass on inside information, hoping to recoup some or all of his losses.
“Gupta perceived Rajaratnam to be a billionaire and the head of a multi-billion dollar, highly successful hedge fund with significant connections around the world,” Brodsky and Tarlowe wrote.
“As a result, Gupta anticipated that a strong personal and business relationship with Rajaratnam would benefit Gupta in tangible and intangible ways,” prosecutors said.
Brodsky and Tarlowe also identified a total of nine different tips that Gupta allegedly passed to Rajaratnam from 2007 until Jan. 30, 2009.
Rakoff said in his ruling on the wiretaps that secret recordings by the Federal Bureau of Investigation during its investigation of the fund manager can be used in Gupta’s prosecution for the same reason that U.S. District Judge Richard Holwell allowed their use in Rajaratnam’s trial last year.
“Gupta offers no arguments different from the arguments Judge Holwell considered in the Rajaratnam case,” Rakoff said. “He argues instead that Judge Holwell’s conclusions are in error. The court disagrees.”
Like Holwell, Rakoff said that wiretaps can be used to investigate wire fraud cases.
“The simple truth is that, in both this and numerous other cases, insider trading cannot often be detected, let alone successfully prosecuted, without the aid of wiretaps,” Rakoff said.
Gupta’s defense lawyers will still have an opportunity to challenge particular Rajaratnam wiretapped recordings before trial on the grounds that they shouldn’t be admitted as evidence because he wasn’t a participant in the conversations.
In another ruling, Rakoff also granted Gupta’s lawyers two additional hours to question Goldman Sachs Chief Executive Officer Lloyd Blankfein under oath, as part of the SEC suit against Gupta and Rajaratnam.
Blankfein, a prosecution witness at the Rajaratnam insider- trading trial, was questioned by Gupta’s lawyers on Feb. 24 as part of the parallel SEC lawsuit.
During the first session, SEC lawyers objected to questions posed by Naftalis about the government’s preparation of Blankfein for his testimony, citing a legal rule barring Gupta from discovering information about the government’s legal strategy and the thought processes of its lawyers.
Blankfein said during the February deposition that prosecutors and SEC lawyers prepared him for the session before he was questioned under oath by Gupta’s lawyers, a transcript shows.
Gupta’s Defense Team
Rakoff granted Naftalis permission to resume questioning Blankfein about these preparations and require the SEC to provide Gupta with the documents the U.S. showed Blankfein during the sessions.
Gupta also lost a bid for dismissal of a charge alleging that Rajaratnam bought at least 350,000 shares of Goldman Sachs in March 2007 after getting a tip from Gupta. His lawyers argued the count should be thrown out because the indictment didn’t say he communicated with Rajaratnam before the trade.
Rakoff also denied a request by Rajaratnam to get access to any SEC memos after they have been reviewed by prosecutors and turned over to Gupta.
Gupta faces as long as 20 years in prison if convicted of any of the securities fraud charges against him and as long as five years if convicted of conspiracy. He also faces a fine of as much as $5 million, prosecutors said.
In a revised indictment filed in January, prosecutors expanded their 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.
Prosecutors also added a charge stemming from a March 12, 2007, conference call during which Goldman Sachs’s pending earnings announcement was discussed. Gupta tipped Rajaratnam after listening to a Goldman Sachs board meeting while at Galleon’s offices, the U.S. said.
The case is U.S. v. Gupta, 11-907, U.S. District Court, U.S. District Court, Southern District of New York (Manhattan).
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