Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director accused of insider trading, lost a bid to have a jury hear wiretaps of Goldman Sachs executive David Loeb tipping Galleon Group LLC co-founder Raj Rajaratnam.
Gupta, who has pleaded not guilty, is on trial in federal court in Manhattan for allegedly passing tips to Rajaratnam about Goldman Sachs and Procter & Gamble Co. (PG), where he was also a director. U.S. District Judge Jed Rakoff made the preliminary ruling yesterday, while allowing Gupta to submit legal briefs on why the evidence should be allowed.
Rajaratnam got some of his illegal tips from Loeb, Goldman Sachs’s head of Asia equity sales in New York, defense attorney Gary Naftalis has said in court. The lawyer has argued to the jury that the “wrong man” is on trial.
With the defense about to rest its case, David Frankel, another lawyer for Gupta, argued at a hearing yesterday after jurors left for the day that Gupta should be allowed to play “substantial” wiretaps made on Aug. 7 and Aug. 22 of 2008 by the Federal Bureau of Investigation. On the calls, Loeb is passing material nonpublic information to Rajaratnam about Intel Corp. (INTC) and Apple Inc. (AAPL), Frankel said.
“There is substantial evidence that supports the argument that Mr. Loeb could’ve been the source of Goldman Sachs tips,” Frankel said in court. “The tapes tell the story that Loeb gets the information, which is confidential to Intel, and he reaches out to Mr. Rajaratnam.”
Rakoff, after issuing his preliminary ruling rejecting the evidence, told defense lawyers that they may submit a legal brief last night explaining why the tapes and e-mails aren’t hearsay and should be admitted.
“This is an attempt to prove an alternative view of the underlying facts and blatant hearsay,” Rakoff told Gupta’s lawyers.
Michael DuVally, a Goldman Sachs spokesman, declined to comment on yesterday’s decision.
Gupta, who ran McKinsey & Co. from 1994 to 2003, is accused of leaking secret tips to Rajaratnam about Goldman Sachs and P&G. Rajaratnam was convicted of insider trading last year and sentenced to 11 years in prison.
The tips in question involve Goldman Sachs earnings in the first quarter of 2007 and fourth quarter of 2008. Another involves a $5 billion Berkshire Hathaway Inc. (BRK/B) investment in Goldman Sachs on Sept. 23, 2008. Prosecutors have said Gupta told Rajaratnam that Cincinnati-based P&G planned to sell its Folgers Coffee unit to J.M. Smucker Co.
Adam Smith, a Galleon trader who pleaded guilty and is cooperating with the U.S., received some of Loeb’s tips on Rajaratnam’s behalf, Frankel said. Loeb, who at the time was a vice president and had Galleon as a client, stood to profit if the fund did well, he said.
‘You and Adam’
“Loeb says, ‘Since I’ve normally given this to Adam to give to you, this goes to you and Adam,’” Frankel quoted from one wiretap of a conversation between Loeb and Rajaratnam. “I give it to a couple of guys on the street, I call you and Adam first.”
The defense also seeks to introduce “urgent” e-mails Loeb sent to Rajaratnam, some which involve Henry King, a Goldman Sachs analyst in Asia, Frankel said.
“He’s providing information to Loeb,” Frankel said. Loeb “gets it from King who gets it from his source at Intel,” the lawyer said.
Assistant U.S. Attorney Reed Brodsky argued that the defense was attempting to insert Loeb into the case and that playing the wiretaps and showing the e-mails without explanation would confuse jurors.
The defense argued that the conversations and e-mails should be introduced into evidence as Loeb’s statements against his interests and as statements of co-conspirators in a crime.
The government hasn’t accused Loeb and King of wrongdoing. Two people familiar with the probe said in February that both men are the subject of a criminal investigation by U.S. authorities in New York.
Rakoff is also weighing whether to admit a wiretapped conversation from Oct. 2, 2008, between Rajaratnam and a Galleon employee in which they discuss Gupta’s $10 million loss in a Galleon fund.
According to Naftalis, Rajaratnam says on the wiretap, “I didn’t tell him that I took the equity out” of the fund.
Gupta’s lawyers contend that’s a reference to Rajaratnam’s willingness to lie and create cover stories. The tape would help the defense argue that the jury shouldn’t believe other Rajaratnam statements that suggest Gupta was his source of illicit information, Naftalis said.
The defense may complete its testimony today. Closing arguments will begin tomorrow, Rakoff said.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
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