Rajat Gupta , the former Goldman Sachs Group Inc. director accused of passing tips to Galleon Group LLC co-founder Raj Rajaratnam, will remain silent as his insider-trading trial enters its final week, his lawyer told the judge.
Gary Naftalis, who said in court June 8 that it was “highly likely” Gupta would testify in what will be the trial’s final week, told U.S. District Judge Jed Rakoff in a letter dated yesterday that Gupta wouldn’t be a witness.
“We have spent the last day reviewing what we believe we need to present in the defense case,” Naftalis said in the letter. “After substantial consideration, we have determined that Mr. Gupta will not be a witness on his own behalf in the defense case. We wanted to alert the court and the government of this decision as soon as it had been made.”
Gupta, who ran McKinsey & Co. from 1994 to 2003, is accused of giving Rajaratnam inside information about Goldman Sachs and Procter & Gamble Co., where Gupta was also a director. Tips Gupta allegedly passed to Rajaratnam involve Goldman Sachs earnings in the first quarter of 2007 and fourth quarter of 2008. Another involves a $5 billion Berkshire Hathaway Inc. investment in New York-based Goldman Sachs on Sept. 23, 2008.
Prosecutors also say Gupta told Rajaratnam that Cincinnati-based P&G planned to sell its Folgers Coffee unit to J.M. Smucker Co.
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.
Naftalis declined to comment on the letter. Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, also declined to comment.
“There could be a hundred reasons Gary would have said one thing on Friday and changed his mind,” Roland Riopelle, a former federal prosecutor in New York, said in a phone interview. Now a white-collar defense lawyer, Riopelle represented David Plate, a former trader at Schottenfeld Group LLC who pleaded guilty and testified at the trial of Galleon Group trader Zvi Goffer.
If Gupta were to take the stand, he would face cross-examination by Assistant U.S. Attorney Reed Brodsky, who is experienced at questioning accused insider traders. In 2010, Brodsky spent parts of two days cross-examining Joseph Contorinis, a former Jefferies Paragon Fund money manager who was subsequently convicted at trial. Contorinis was sentenced to six years on prison, while prosecutors had asked for a lengthier term because they said he lied on the witness stand.
“There’s really no way to tell whether that was some kind of faked arch tactic, that if you fail, the prosecutor, Reed Brodsky, would spend all weekend working on his cross-examination of Rajat Gupta rather than his summation,” Riopelle said. A defendant taking the stand often allows prosecutors the chance to reprise their best evidence, he said.
Talking to Jury
“A lot of the time the very successful corporate types want to testify because they’ve been talking people into doing things their entire careers, so they think they can do it,” he said. “But talking to a jury is much different. The smart money was betting against his taking the stand.”
A defendant taking the stand is a risk, said Gerald Shargel, a veteran criminal defense lawyer in New York who represented Marc Dreier, the New York law firm founder who pleaded guilty to federal fraud charges.
“The conventional wisdom is that if you feel comfortable about the weaknesses in the government’s case you don’t have your client take the stand,” Shargel said. “But if you think there are points to be explained in the case, you may make that decision and put them on.”
Shargel said he defended a client accused of securities fraud and bribery who testified in his own defense and was acquitted after he explained statements that were recorded.
“There have been cases lost on the defendant’s testimony and I’ve seen cases that result in acquittal based on a defendant’s testimony,” Shargel said. “It’s a case-by-case judgment call.”
Before dismissing jurors on June 8 for the weekend, Rakoff told them that their deliberations may begin as early as June 13. The trial began May 21.
After the jury left, Rakoff pressed defense lawyers about their lineup of witnesses, including whether Gupta would testify.
“I can say that it’s highly likely that my client will testify,” Naftalis responded.
Rakoff told defense lawyers that they would have to limit their character witnesses to six, instead of the dozen which Naftalis had sought to put on the stand.
The judge said prosecutors would need the weekend to prepare for testimony by Gupta. Naftalis responded that he would reach out to prosecutors if Gupta decided he wouldn’t testify.
The government rested its case against Gupta on June 8 after Goldman Sachs Chief Executive Officer Lloyd Blankfein completed his testimony.
Blankfein, under cross-examination from Naftalis, acknowledged that senior firm executives had briefed outside analysts in July 2008 on the likelihood that Goldman Sachs would acquire a bank. The defense brought out the testimony to counter a prosecution claim that Rajaratnam learned about the bank’s acquisition plans from Gupta.
“Items that your senior management disclose to analysts are no longer confidential?” asked Naftalis.
“Yes,” Blankfein responded.
Naftalis also attacked an allegation that Gupta leaked tips on Oct. 23, 2008, about Goldman Sachs’s unprecedented losses after Gupta learned of them at a meeting that afternoon. Through questioning by Naftalis, Blankfein testified that board members had probably been briefed about losses as early as Oct. 13.
Naftalis confronted Blankfein with a news article based on unidentified sources from the morning of Oct. 23 disclosing Goldman’s plans, as-yet unannounced, to cut 10 percent of its staff.
The Goldman Sachs CEO didn’t recall the news story or the voice-mail he distributed to the firm’s 32,500 employees after the report came out. Naftalis had Blankfein read part of the transcript of the voice-mail, including the sentence, “We regret that many of you heard of this decision from news accounts.”
Other Goldman Sachs executives who testified for prosecutors included director William George and former vice chairman of investment banking Byron Trott, the architect of the $5 billion investment by Warren Buffett’s Berkshire Hathaway.
Juries heard testimony June 8 from defense witnesses, Ajit Jain, Berkshire Hathaway’s reinsurance chief and a close friend of Gupta’s, and Richard Feachem, former executive director of the Global Fund to Fight AIDS, Tuberculosis & Malaria.
Jain, whose May 27 testimony was videotaped and played for the jury because of a scheduling conflict, said he spoke to Gupta about Rajaratnam on Jan. 12, 2009, when both men met for lunch in Stamford, Connecticut.
“He told me, as best I can remember, that he had a 10 million investment with Rajaratnam in some venture and he had been gypped, swindled or cheated by Raj,” Jain said. “He lost his entire investment with Mr. Rajaratnam.”
“So it wasn’t just an issue of a bad investment?” Naftalis asked.
“Right,” Jain said.
Jain’s testimony supports the defense’s contention that Gupta wouldn’t have tipped Rajaratnam because the fund manager and the defendant had a falling out after Rajaratnam lost Gupta’s entire $10 million investment.
Jain’s recorded testimony is scheduled to continue today.
Rajaratnam was convicted of insider trading last year and is serving an 11-year prison sentence. Unlike Rajaratnam’s trial, in which prosecutors played recordings of the defendant in wiretapped phone calls, the Gupta case is built on circumstantial evidence, including records of trades, mobile-phone call logs and business deals.
Blankfein testified that he briefed his board over the phone on the Buffett investment on Sept. 23, 2008, beginning at 3:15 p.m. Within a minute after the call concluded at 3:53 p.m., Rajaratnam answered a call from a McKinsey conference room being used by Gupta, according to phone records and witness testimony.
Former Galleon trader Ananth Muniyappa testified Rajaratnam got off a call at that time and hurriedly told him to buy Goldman Sachs shares. Galleon bought 267,000 shares. Prosecutors played a wiretapped recording of a Rajaratnam phone call from the next day.
“I got a call at 3:58, right?” Rajaratnam could be heard telling trader Ian Horowitz. “Saying something good might happen to Goldman.”
Michael Cardillo, a former Galleon portfolio manager who pleaded guilty and is cooperating with the government, testified that he traded on P&G stock in 2009 after learning that Rajaratnam claimed to have a “guy” on the consumer-product company’s board.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).