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Goldman’s Blankfein to Testify at Rajaratnam’s Trading Trial

Goldman Sachs Group Inc. CEO Lloyd Blankfein
Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc. Photographer: Andrew Harrer/Bloomberg

Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., will be called by U.S. prosecutors to testify as a government witness at Galleon Group LLC co-founder Raj Rajaratnam’s insider-trading trial.

In a letter sent to U.S. District Judge Richard Holwell, who is presiding over Rajaratnam’s trial in Manhattan, prosecutors sought to limit Blankfein’s cross-examination by Rajaratnam’s lawyers.

In calling Blankfein as a witness, prosecutors in the office of U.S. Attorney Preet Bharara in Manhattan said they don’t want Blankfein to be questioned about “whether Goldman Sachs is presently the subject of any pending investigations by either the Department of Justice or the U.S. Securities and Exchange Commission” and whether the bank bears any responsibility for the 2008 financial crisis.

Rajaratnam’s lawyer, John Dowd, in a separate letter to prosecutors, also dated March 21, said,“Today, counsel learned for the first time that neither Mr. Blankfein nor Goldman Sachs has been notified that they are a target (or for that matter a subject) of any active investigation.”

Rajaratnam, 53, is on trial in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from tips leaked by corporate insiders and hedge fund traders. He denies wrongdoing, saying he based his trades on research.

Yesterday in the trial, Rajiv Goel, who worked in Intel Corp.’s treasury group, testified that he passed confidential information to his “pal” Rajaratnam.

Goel, who is testifying for prosecutors in a bid for leniency after pleading guilty to conspiracy and securities fraud, said he told Rajaratnam about Intel’s earnings in 2007 and a $1 billion transaction in 2008.

‘Good Friends’

“Raj and I were very good friends,” Goel, 52, testified, as Rajaratnam watched from across the well of the courtroom. “He was a good man to me. I was a good pal, a good person to him, so I gave him the information.”

Goel, who was a managing director at Intel, is the second government cooperator to directly implicate Rajaratnam in insider trading. Anil Kumar, a former McKinsey & Co. partner who also pleaded guilty, earlier testified about information he leaked about clients. Other government witnesses have also testified about leaks to Rajaratnam.

Government Witness

The U.S. subpoenaed Blankfein to testify about former Goldman Sachs director Rajat Gupta and his interactions with Rajaratnam, prosecutors said in their letter to the judge. Blankfein could testify “as early as this week,” Dowd said in a March 20 letter to Holwell.

After testimony concluded yesterday, Holwell said that he will hear oral arguments regarding “the Goldman letter” today before testimony resumes. Tomorrow is scheduled to be the last day of testimony this week.

Dowd sought to “identify all ‘open investigations’ of Goldman Sachs” by the Justice Department or the SEC, prosecutors said.

Ed Canaday, a spokesman for New York-based Goldman Sachs, declined comment on the government’s letter.

Jim McCarthy, a spokesman for Rajaratnam, didn’t have an immediate comment.

Prosecutors want Blankfein as a witness to show that Rajaratnam traded on inside information about Goldman Sachs he obtained from Gupta, after Gupta attended a board meeting. The U.S. said in its letter that Blankfein’s testimony is “limited in scope,” as it pertains to Gupta.

Berkshire Investment

Rajaratnam got a tip from Gupta about a $5 billion investment in the firm by Warren Buffett’s Berkshire Hathaway Inc., and Gupta allegedly passed the news immediately to Rajaratnam, who bought shares, prosecutors told the jury in opening statements.

“Were Mr. Blankfein’s testimony regarding the actions of one board member, Rajat Gupta, to become the vehicle through which he is called upon to answer questions regarding any number of unrelated pending proceedings, there would be a serious danger of prejudice and confusion,” prosecutors said.

On March 7, Rajaratnam served a trial subpoena on Goldman Sachs seeking “documents sufficient to show currently active investigations” being conducted by the Department of Justice, Bharara’s office and the SEC.

In the subpoena, Rajaratnam requested notes and memoranda of interviews of Blankfein and Gupta, as well as Gary D. Cohn, Goldman Sachs’s president and chief operating officer, and David Viniar, the firm’s chief financial officer, relating to the disclosure of inside information to Rajaratnam.

Board Minutes

The subpoena also calls for minutes of Goldman Sachs board meetings and committees that took place on July 17, 2008, and October 23, 2008, and any materials distributed to board members for those meetings.

The SEC on March 1 filed administrative charges accusing Gupta of leaking confidential information to Rajaratnam, including Berkshire’s investment in Goldman Sachs, the securities firm’s quarterly earnings, and financial results for Procter & Gamble Co., where Gupta was also a director. Prosecutors, calling Gupta a Rajaratnam co-conspirator, made similar allegations in their opening statements at the insider-trading trial.

Gupta’s tips allegedly spurred Rajaratnam to buy Goldman Sachs stock, earning $1 million in two minutes, Assistant U.S. Attorney Jonathan Streeter told the jury March 9. Streeter said another tip by Gupta about Goldman Sachs losses prompted Galleon to sell shares and avoid losing millions of dollars.

Gupta’s Suit

Gupta sued the SEC on March 18, claiming the SEC’s administrative action unfairly bars him from a jury trial. Gupta seeks a jury trial and to have the SEC barred from asking for civil penalties. He is also seeking a court order keeping the agency from pursuing its administrative claims against him.

Gupta stepped down from Goldman Sachs’s board last year and resigned from Procter & Gamble. Gupta is a former managing director of McKinsey & Co. and is currently the firm’s senior partner emeritus.

In Gupta’s lawsuit, Gary Naftalis, his lawyer, called the regulator’s claims baseless. He has also said there is no allegation that Gupta made any illegal trades or shared in any profits from them.

Gupta has been mentioned almost daily at Rajaratnam’s trial, which began March 8.

Government’s Intent

In the government’s letter to the court, prosecutors said they wanted to prevent Rajaratnam’s team from implying that “Blankfein is testifying in this matter in hopes of obtaining a better resolution of some separate, ongoing legal proceeding involving Goldman Sachs.”

“There is absolutely no support for such a claim, it is entirely false,” assistant U.S. attorneys Streeter and Reed Brodsky said in the letter.

“The government has made no promise, explicit or implicit, direct or indirect, express or implied that Mr. Blankfein or Goldman Sachs will receive anything at all in exchange for his testimony.”

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

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