Goldman Sachs Group Inc. director Claes Dahlback and Berkshire Hathaway Inc. reinsurance chief Ajit Jain may be called as potential defense witnesses at the insider-trading trial of ex-Goldman director Rajat Gupta, a prosecutor said.
U.S. District Judge Jed Rakoff, who is presiding over Gupta’s case, today asked prosecutors and defense lawyers to name witnesses and summarize their accounts to resolve a dispute over evidence that had erupted in the case. Gupta faces trial in April on five counts of securities fraud and one count of conspiracy, for allegedly passing tips about Goldman Sachs and Procter & Gamble to former Galleon Group LLC hedge fund manager Raj Rajaratnam.
Jain was interviewed by both prosecutors and defense lawyers and may be a witness for Gupta, Assistant U.S. Attorney Reed Brodsky said at today’s hearing.
“Ajit Jain, a close friend of Gupta’s, spoke to us after he spoke to the defense,” Brodsky said. “My understanding is that he spoke to the defense again after he spoke to us.”
The prosecutor said Dahlback, who is a former chief executive officer of Sweden’s Investor AB and sits on Goldman Sachs’s board of directors, spoke to Gupta after Rajaratnam’s October 2009 arrest.
“Dahlback asked Gupta if Gupta knew Rajaratnam,” Rakoff said, quoting a memo summarizing Dahlback’s June interview with the government. “Gupta responded that ‘Rajaratnam was a bad man.’ Gupta further stated Gupta lost money with Rajaratnam,” Rakoff said, summarizing the witness report.
Gupta’s lawyer, Gary Naftalis, told the judge it was too early to say who he will call as witnesses. The defense will argue that his client wouldn’t have passed tips to the fund manager because their friendship deteriorated in 2008 after Gupta lost $10 million in an investment with Rajaratnam that failed, the lawyer said.
“We were unhappy with Mr. Rajaratnam, on how we were dealt with and whether we were treated fairly,” Naftalis said of his client’s feeling toward the fund manager. “This behavior is inconsistent with the going out and tipping him.”
Brodsky said the government would challenge Naftalis’s claim that Gupta and Rajaratnam’s friendship faltered after their investments failed in the wake of Lehman Brother’s collapse in Sept. 2008.
“We completely disagree with that premise,” Brodsky said. “We don’t think there was a deterioration, We even think there was even more of a motive, a result of Mr. Gupta’s incurring losses with Mr. Rajaratnam.”
Brodsky said two others who worked at Exemplar Wealth Management managing Gupta’s investments could be defense witnesses at the trial.
Berkshire CEO Warren Buffett picked Jain to run the company’s reinsurance operations more than 20 years ago and has repeatedly praised the executive for his performance and character. Jain, 60, heads Berkshire’s National Indemnity Co. and specializes in writing large and unusual policies. The premiums from those have helped fund Buffett’s investments through the years.
Buffett, 81, is planning for succession at Berkshire and has said Jain would have the support of the board if he wanted to be the next CEO. Jain “loves what he does, he’s not looking to take my job,” Buffett said last year.
Jain didn’t immediately respond to a message left with an assistant.
Michael DuVally, a spokesman for New York-based Goldman Sachs, didn’t immediately return a call placed to his office after business hours seeking comment on behalf of Dahlback.
Gupta is scheduled for trial in April on five counts of securities fraud and one count of conspiracy. He faces as long as 20 years in prison if convicted on each of the securities fraud charges and as long as five years if convicted of conspiracy, according to the government. He also faces a fine of as much as $5 million. Rajaratnam is serving an 11-year prison term after being convicted of directing the biggest hedge-fund insider-trading scheme in U.S. history.
The indictment cites three instances in which Gupta is accused of tipping Rajaratnam, 54. The ex-Goldman Sachs director is accused of telling the hedge fund manager about Berkshire’s $5 billion investment in the New York-based bank in September 2008, about Goldman Sachs’s unexpected fourth-quarter loss that year, and about Cincinnati-based P&G’s poor performance in late 2008.
The indictment cites close ties between the two men, saying Gupta, 63, of Westport, Connecticut, invested $2.4 million in at least two Galleon offshore funds, put $10 million into a venture Rajaratnam called Voyager Capital Partners, and committed $22.5 million to a fund they created to focus on emerging markets in Asia.
The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court for the Southern District of New York (Manhattan).