Gupta’s Lawyer Says ‘Wrong Man’ on Trial in Insider Case

A lawyer for former Goldman Sachs Group Inc. director Rajat Gupta, accused of passing nonpublic information to Galleon Group LLC fund manager Raj Rajaratnam, said today that the U.S. had the “wrong man” on trial.

Gupta’s lawyer, Gary Naftalis, said that Rajaratnam had a different Goldman Sachs tipper, who gave him confidential information about Intel Corp. and Apple Inc., the lawyer said. That Goldman source was also caught on government wiretaps passing the inside information, Naftalis said.

Gupta, 63, who denies wrongdoing, is scheduled to go on trial May 21 for leaking tips to Rajaratnam about Goldman Sachs and Procter & Gamble Co., where Gupta was also a director.

“There are wiretaps, wiretaps that they’ve had for years, that this confidential information is being given out,” Naftalis argued today.

“The fact is important because we have the issue that you have the wrong man on trial here,” Naftalis said. “They know that there is a person at Goldman Sachs who has leaked inside information on at least two securities, on Apple and Intel, to Mr. Rajaratnam. It is certainly clear to us this is hot information. We intend to press on this issue. We think there is a much more circumstantial case that that person should be sitting in the box than us.”

‘Mr. X’

Prosecutors disclosed in a Feb. 3 letter to U.S. District Judge Jed Rakoff, who is presiding over the case, that Rajaratnam had a second “insider at Goldman Sachs” who leaked tips to Rajaratnam. Rakoff has referred to this individual as “Mr. X.”

Prosecutors also said the tips didn’t relate to Goldman Sachs or Procter & Gamble.

Two Goldman Sachs executives, David Loeb and Henry King, are under investigation by the U.S. for possible insider-trading charges, according to people with knowledge of the probe who declined to be identified because the matter isn’t public. Testimony from Rajaratnam’s trial last year showed that Loeb, head of Asia Equity Sales in New York with a focus on Taiwan, had dealings with Rajaratnam.

Lawyers didn’t identify the Goldman Sachs insider in court today. Michael DuVally, a spokesman for Goldman Sachs, declined to comment on Naftalis’s assertions.

Sharing Memos

The assertions came today after Assistant U.S. Attorney Reed Brodsky said that Rajaratnam’s lawyers had been sharing government memos on witnesses who testified against the fund manager at his trial last year.

Brodsky asserted that while Gupta’s defense team has claimed they haven’t gotten evidence from prosecutors and sought the identity of “Mr. X,” defense lawyers already had evidence provided by Rajaratnam, including a copy of a memorandum of a Jan. 11, 2011, interview by agents of the Federal Bureau of Investigation with former Galleon portfolio manager Adam Smith. Brodsky said today Gupta’s lawyers claimed at a January hearing that they didn’t know who the Goldman insider was.

“They started making accusations that Mr. Gupta has no idea who the Goldman insider was who was providing nonpublic information,” Brodsky said. “A Jan. 11, 2011, memo of Adam Smith’s interview contains all that information,” he said.

Rakoff later reviewed the letter from the government identifying that individual and agreed with prosecutors to keep it under seal because the alleged tips weren’t related to any of the charges against Gupta.

‘Directly or Indirectly’

“They have nothing to do with any issue in this case, directly or indirectly, and therefore do not need to be disclosed,” Rakoff said in February. He didn’t rule on the matter today, saying “I don’t think any court action is required, one way or another.”

Rakoff also hasn’t yet ruled on whether he’ll permit Gupta’s lawyers to present the evidence of another Goldman source to the jury.

Naftalis declined to comment after court, as did prosecutors.

Gupta, the one-time McKinsey & Co. leader and former director at Procter & Gamble, was accused in October by Manhattan U.S. Attorney Preet Bharara of passing inside information to Rajaratnam, co-founder Galleon Group LLC. The U.S. says Gupta tipped Rajaratnam about Goldman Sachs and P&G earnings.

A revised indictment filed in January expanded prosecutors’ description of the insider-trading scheme, saying it began in March 2007, not in 2008, as the U.S. alleged when Gupta was first charged in October.

Rajaratnam, who was convicted by a jury last year of all 14 counts against him, is serving an 11-year prison term.

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

Before it's here, it's on the Bloomberg Terminal. LEARN MORE