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Gupta Likely to Testify at Insider Trial, His Lawyer Says

Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director, will probably testify next week at his insider-trading trial, his lawyer told the judge after the prosecution rested and the defense began presenting its case.

“It was represented to me at the sidebar that Mr. Gupta would likely take the stand, given the background of what the court has said?” U.S. District Judge Jed Rakoff asked Gupta’s defense lawyers yesterday after jurors were dismissed for the weekend.

“I can say that it’s highly likely that my client will testify,” attorney Gary Naftalis answered.

Gupta, who ran McKinsey & Co. from 1994 to 2003, is accused of leaking secret tips to Raj Rajaratnam, co-founder of hedge- fund company Galleon Group LLC, about Goldman Sachs and Procter & Gamble Co. (PG), where Gupta was also a director.

Gupta has pleaded not guilty to one count of conspiracy and five counts of securities fraud, which carries a maximum term of 20 years in prison.

Naftalis’s announcement about Gupta came at a hearing in which Rakoff pressed defense lawyers about their schedule and witness lineup. The judge yesterday also rejected a defense motion to dismiss the charges. The judge told jurors before he sent them home that their deliberations may begin as early as June 13.

Witness Stand

Rakoff said that should Gupta decide to take the witness stand in his own defense next week, government lawyers would need the weekend to prepare.

“This is a pretty tough decision to make,” Naftalis told Rakoff. If Gupta decides he won’t testify, the lawyer would reach out to prosecutors.

“I represent that it’s highly likely,” Naftalis said. “If we change our mind I will immediately pick up the phone to them and say, ‘Put down your pencils.’”

Rakoff also told defense lawyers that they would have to limit their character witnesses to six, instead of the dozen which Naftalis had sought to put on the stand.

“Now that we know the defendant is very likely to take the stand, is he last?” Rakoff asked.

“He would be at the end,” Naftalis said, suggesting it would be June 12.

Gupta declined to comment after court yesterday about his potential testimony, as did Naftalis.

A defendant taking the stand is a risk, said Gerald Shargel, a veteran criminal defense lawyer in New York who represented Marc Dreier, the New York law firm founder who pleaded guilty to federal fraud charges.

‘Conventional Wisdom’

“The conventional wisdom is that if you feel comfortable about the weaknesses in the government’s case you don’t have your client take the stand,” Shargel said. “But if you think there are points to be explained in the case, you may make that decision and put them on.”

Shargel said he defended a client accused of securities fraud and bribery who testified in his own defense and was acquitted after he explained statements that were recorded.

“There have been cases lost on the defendant’s testimony and I’ve seen cases that result in acquittal based on a defendant’s testimony,” Shargel said. “It’s a case-by-case judgment call.”

Juries heard testimony yesterday from defense witnesses, Ajit Jain, Berkshire Hathaway Inc. (BRK/A)’s reinsurance chief and a close friend of Gupta’s, and Richard Feachem, former executive director of the Global Fund to Fight AIDS, Tuberculosis & Malaria.

Jain Testimony

Jain, whose May 27 testimony was videotaped and played for the jury yesterday because of a scheduling conflict, said he spoke to Gupta about Rajaratnam on Jan. 12, 2009, when both men met for lunch in Stamford, Connecticut.

“He told me, as best I can remember, that he had a 10 million investment with Rajaratnam in some venture and he had been gypped, swindled or cheated by Raj,” Jain said. “He lost his entire investment with Mr. Rajaratnam.”

“So it wasn’t just an issue of a bad investment?” Naftalis asked.

“Right,” Jain said.

Jain’s testimony supports the defense’s contention that Gupta wouldn’t have tipped Rajaratnam because the fund manager and the defendant had a falling out after Rajaratnam lost Gupta’s entire $10 million investment.

Tips Gupta allegedly passed to Rajaratnam involve Goldman Sachs earnings in the first quarter of 2007 and fourth quarter of 2008. Another involves a $5 billion Berkshire Hathaway Inc. investment in Goldman Sachs on Sept. 23, 2008. Prosecutors also say Gupta told Rajaratnam that Cincinnati-based P&G planned to sell its Folgers Coffee unit to J.M. Smucker Co.

Lloyd Blankfein

Earlier yesterday, prosecutors rested their case against Gupta shortly after Goldman Sachs Chief Executive Officer Lloyd Blankfein completed his testimony.

Under cross-examination from Naftalis, Blankfein acknowledged that senior firm executives had briefed outside analysts in July 2008 on the likelihood that Goldman Sachs would acquire a bank. The defense brought out the testimony to counter a prosecution claim that Rajaratnam learned about the bank’s acquisition plans from Gupta.

“Items that your senior management disclose to analysts are no longer confidential?” Naftalis asked.

“Yes,” Blankfein responded.

Naftalis also attacked an allegation that Gupta leaked tips on Oct. 23, 2008, about Goldman Sachs’s unprecedented losses after Gupta learned of them at a meeting that afternoon. Through questioning by Naftalis, Blankfein testified that board members had probably been briefed about losses as early as Oct. 13.

News Article

Naftalis confronted Blankfein with a news article based on unidentified sources from the morning of Oct. 23 disclosing Goldman’s plans, as-yet unannounced, to cut 10 percent of its staff.

The Goldman Sachs CEO didn’t recall the news story or the voice-mail he distributed to the firm’s 32,500 employees after the report came out. Naftalis had Blankfein read part of the transcript of the voice-mail, including the sentence, “We regret that many of you heard of this decision from news accounts.”

Blankfein’s testimony ran over parts of three days. Other Goldman Sachs executives who testified for prosecutors included director William George and former vice chairman of investment banking Byron Trott, the architect of the $5 billion investment by Warren Buffett’s Berkshire Hathaway.

The government also relied on testimony from a former Galleon trader, Ananth Muniyappa, and an ex-Galleon portfolio manager, Michael Cardillo, who pleaded guilty and is cooperating with the government. The trial began May 21.

Rajaratnam’s Trial

Rajaratnam was convicted of insider trading last year and is serving an 11-year prison sentence. Unlike Rajaratnam’s trial, in which prosecutors played recordings of the defendant in wiretapped phone calls, the Gupta case is built on circumstantial evidence, including records of trades, mobile- phone call logs and business deals.

Earlier at the trial, Blankfein testified that he briefed his board over the phone on the Buffett investment on Sept. 23, 2008, beginning at 3:15 p.m. Within a minute after the call concluded at 3:53 p.m., Rajaratnam answered a call from a McKinsey conference room being used by Gupta, according to phone records and witness testimony.

Muniyappa testified Rajaratnam got off a call and hurriedly told him to buy Goldman Sachs shares. Galleon bought 267,000 shares. Prosecutors played a wiretapped recording of a Rajaratnam phone call from the next day.

“I got a call at 3:58, right?” Rajaratnam could be heard telling trader Ian Horowitz. “Saying something good might happen to Goldman.”

Cardillo testified that he traded on P&G stock in 2009 after learning that Rajaratnam claimed to have a “guy” on the consumer-product company’s board.

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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