Rajaratnam Added $4 Million to Gupta Fund Value: Witness

A lawyer for former Goldman Sachs Group Inc. (GS) director Rajat Gupta, who’s on trial for disclosing inside information, tried to persuade jurors that leaks from the bank came from another firm executive.

With the government’s case winding down in Manhattan federal court, prosecutors yesterday called Joseph Yanagisawa, who works in Goldman Sachs’s technology unit, to testify about records of phone calls between Gupta’s office and Chief Executive Officer Lloyd Blankfein’s office.

On cross-examination, defense lawyer David Frankel confronted him with phone logs showing two dozen calls between phones associated with David Loeb, Goldman Sachs’s head of Asia Equity Sales in New York, and Galleon Group LLC co-founder Raj Rajaratnam.

“That was Mr. Loeb calling?” Frankel asked of a record of one call to Rajaratnam’s direct line.

“Yes,” Yanagisawa replied.

The logs showed calls from Loeb’s phones to numbers associated with Rajaratnam and Galleon trader Adam Smith on dates when Gupta is alleged to have tipped Rajaratnam, bolstering a defense claim that it was Loeb or others who leaked data.

Loeb, whose job kept him in regular contact with hedge funds, hasn’t been accused of wrongdoing, and Frankel didn’t present other evidence that he was the source of Rajaratnam’s information.

Two Companies

Assistant U.S. Attorney Reed Brodsky said in court on May 23 that Loeb passed tips to Rajaratnam about Apple Inc. (AAPL), Intel Corp. (INTC) and Hewlett-Packard Co. (HPQ) Gupta is accused of leaking data about two other companies, Goldman Sachs and Procter & Gamble Co. (PG)

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the phone logs.

Gupta, 63, who ran McKinsey & Co. from 1994 to 2003 and also sat on the P&G board, had pleaded not guilty to five counts of securities fraud and one of conspiracy. Securities fraud carries a maximum penalty of 20 years in prison.

The logs offered in court yesterday showed Loeb making repeated calls in 2007 and 2008 to Rajaratnam’s business and cellphone lines and to numbers associated with Smith, a former Galleon trader who has pleaded guilty to insider trading and is cooperating with prosecutors.

Several Calls

Loeb made two calls to Smith’s number on the afternoon of Sept. 23, 2008, including one at 3:07 p.m. Prosecutors say Gupta tipped Rajaratnam at around 3:55 p.m. that day to news of Berkshire Hathaway Inc. (BRK/A)’s $5 billion investment in Goldman Sachs.

Loeb made four calls to numbers tied to Smith and Rajaratnam on Oct. 23, 2008, records showed. Prosecutors say Gupta tipped Rajaratnam that day to news that Goldman Sachs would lose almost $2 a share, worse than Wall Street expected.

Earlier in the day, another witness testified that Rajaratnam agreed to value an investment Gupta made in a Galleon fund at almost $4 million more than Rajaratnam initially wanted, suggesting Gupta had a motive to leak information in return.

According to Isvari Mahadeva, a former Galleon portfolio manager, Gupta made the investment with Rajaratnam and another man in a Galleon fund called Voyager Capital Partners. Gupta invested $5 million in 2005 and added $5 million more in December 2006, gaining an additional 10 percent stake, she said.

Additional Profit

The two later disagreed over whether Gupta’s additional profit dated to December 2006, as Rajaratnam claimed, or earlier, as Gupta wanted, Mahadeva said. By the end of 2007, Rajaratnam’s interpretation meant Gupta’s stake was worth $12.7 million while Gupta thought it was worth millions more, she said.

The dispute went on for “several months,” Mahadeva told jurors, adding that she sometimes saw Gupta in Rajaratnam’s office at Galleon. In August 2008, Rajaratnam agreed to a higher valuation and wrote a letter to Gupta putting his stake in Voyager at $16.4 million, or “$4 million more,” she said.

The defense also points to the Voyager investment, saying Gupta wouldn’t have leaked information to Rajaratnam because he later lost Gupta’s entire $10 million investment. Gupta considered suing Rajaratnam, the defense says.

Added Profits

On cross-examination, Mahadeva said Gupta’s investment agreement in Voyager was ambiguous and open to conflicting interpretations as to when added profits would be counted. Mahadeva testified that $25 million Rajaratnam withdrew from Voyager wasn’t reflected on statements sent to Gupta.

Blankfein, who was testifying when the trial recessed on June 4, will likely return to the witness stand today, after which prosecutors may rest their case. He was excused yesterday to attend his daughter’s high school graduation, U.S. District Judge Jed S. Rakoff told jurors.

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; David Glovin in New York at dglovin@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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