June 7 (Bloomberg) -- Just 23 seconds after a telephone line associated with Rajat Gupta’s assistant ended a call with Goldman Sachs Group Inc. on Oct. 23, 2008, a call was placed at 4:50 p.m. from that phone to Raj Rajaratnam’s line at Galleon Group LLC, an FBI agent said at Gupta’s insider-trading trial.
When the market opened the next morning, Galleon traders sold 150,000 shares of Goldman Sachs stock ahead of news that the bank would sustain losses in the quarter, the agent said. Galleon traders saved $3.8 million by selling when they did, the Federal Bureau of Investigation’s James Barnacle said.
“By selling the stock on Oct. 24, the traders avoided losses in the stock because of the resulting price decline,” Barnacle told jurors in Manhattan federal court.
As prosecutors near the close of their circumstantial case against Gupta, Barnacle this morning testified about Galleon trading data and records of calls between Gupta and Rajaratnam phone lines. The agent provided details on calls and trades involving eight sets of Galleon transactions.
Gupta, 63, who ran McKinsey & Co. from 1994 to 2003 and was on the boards of Goldman Sachs and Procter & Gamble Co., is accused of leaking tips to Rajaratnam. 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.
One of Gupta’s alleged leaks involves a tip on Oct. 23, 2008, that Goldman Sachs would lose almost $2 a share, worse than Wall Street expected. Another centers on news that P&G would sell its Folgers coffee unit to J.M. Smucker Co.
Barnacle reviewed phone records showing calls from McKinsey offices in Switzerland to Cincinnati-based P&G and then to Rajaratnam’s line on June 2, 2008, two days before the Folgers deal was announced. Prosecutors say Gupta made the call from the World Economic Forum’s annual meeting in Davos. Galleon traders, who rarely traded in Smucker stock, were responsible for 25 percent of all Smucker trades on June 2, Barnacle said, showing jurors charts he’d made.
Galleon earned more than $10 million on trades that prosecutors say were based on inside information, Barnacle said.
Defense attorney David Frankel began his cross-examination of Barnacle seeking to show that the information in his charts is misleading and omits important data.
The government’s final witness will be Goldman Sachs Chief Executive Officer Lloyd Blankfein, who was testifying when the trial recessed on June 4 and may return to the witness stand this afternoon. Blankfein was testifying about Gupta and Goldman Sachs policies when the trial ended that day.
Blankfein will be subject to a lengthy cross-examination, defense attorney Gary Naftalis said in court.
Prosecutors are expected to rest their case tomorrow after Blankfein’s testimony concludes.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
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