Former Goldman Sachs Group Inc. director Rajat Gupta rested his defense to federal insider-trading charges without testifying or being allowed to play wiretapped recordings that his lawyer called “crucial” to his case.
Defense attorney Gary Naftalis told U.S. District Judge Jed Rakoff today that Gupta, 63, who ran McKinsey & Co. from 1994 to 2003, had finished offering evidence. During the trial, which began May 21, the government called 20 witnesses while the defense called 11 witnesses.
“Defense rests, your honor,” Naftalis said. Summations are set to begin tomorrow morning, and Rakoff told the jury they may begin their deliberations late tomorrow afternoon.
Gupta is accused of leaking inside information to Galleon Group LLC hedge fund co-founder Raj Rajaratnam about Goldman Sachs and Procter & Gamble Co., where Gupta was also a director. He’s charged with one count of conspiracy and five counts of securities fraud, which carries a maximum term of 20 years in prison.
The defense, which began June 8, was based in part on a claim that David Loeb, another Goldman Sachs executive whose job required him to be in regular contact with fund managers like Rajaratnam, was tipping the Galleon co-founder at the same time that prosecutors allege Gupta was passing nonpublic information.
Rakoff today repeated his earlier ruling barring the defense from playing two August 2008 wiretapped recordings made by the Federal Bureau of Investigation and e-mails that the defense claims show Loeb tipping Rajaratnam.
David Frankel, another Gupta attorney, argued that what the judge called “Loeb evidence” was a “crucial” part of the defense case and proved “that another person committed an act of which the defendant stands accused.”
“Loeb had a history of feeding information to Rajaratnam,” Frankel said, including calling him more than once on Oct. 23, 2008, the same day prosecutors say Gupta tipped Rajaratnam about Goldman’s earnings.
Loeb hasn’t been accused of wrongdoing. Prosecutors told Rakoff at a hearing they had evidence Loeb passed Rajaratnam information about Intel Corp., Apple Inc. and Hewlett-Packard Co., none of which are involved in Gupta’s case.
Rakoff today said the evidence pertaining to Loeb was inadmissible “hearsay.”
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on Rakoff’s decision or on claims made by the defense about Loeb.
The tips Gupta allegedly passed include Goldman Sachs earnings in the first quarter of 2007 and fourth quarter of 2008. Another involved a $5 billion Berkshire Hathaway Inc. investment in Goldman Sachs on Sept. 23, 2008, and the firm’s fourth-quarter earnings in 2008.
Prosecutors have said Gupta also told Rajaratnam that Cincinnati-based P&G planned to sell its Folgers Coffee unit to J.M. Smucker Co.
Rajaratnam was convicted at a trial last year and is serving an 11-year prison sentence. He and Gupta are the biggest figures caught in a nationwide insider-trading probe that began in October 2009 and has resulted in more than five dozen arrests.
The defense has argued that Gupta parted ways with Rajaratnam after he discovered the fund manager had withdrawn money without his knowledge from the Voyager Fund, an investment they had created together.
Gupta’s lawyers have said he had no motive to tip Rajaratnam, pointing to his loss of a $10 million investment in a Galleon fund and Gupta’s subsequent claim that Rajaratnam cheated him.
Defense lawyers concluded their case today just as prosecutors did, by playing a wiretapped call made by the FBI of Rajaratnam talking on his mobile phone.
During the Oct. 2, 2008, call, Rajaratnam and Sanjay Santhanam, a Galleon portfolio manager, discuss the Voyager Fund. Rajaratnam had borrowed at least $300 million from Lehman Brothers Holdings Inc., which filed for bankruptcy on Sept. 15, 2008, a Galleon fund manager testified.
“Under the circumstances, how are you holding up?” Santhanam asks Rajaratnam.
“Look, it’s a game,” Rajaratnam replies. “When you take leverage you, you know. My problem is, I’m a big boy. I hope Rajat is a big boy.” He added that, “ I didn’t tell him I took that equity out.”
Gupta decided over the weekend not to testify after his lawyers told the judge on June 8 that it was “highly likely” he would take the stand.
Today, Rakoff agreed to allow Gupta’s eldest daughter, Geetanjali Gupta, to testify about her father’s demeanor from September 2008 through November 2008, a period when the government alleges Gupta was passing Rajaratnam tips.
Geetanjali Gupta testified she had several conversations with her father about his investment with Rajaratnam beginning on Sept. 20, 2008, when she was celebrating her 30th birthday with her parents. The discussions continued until Thanksgiving of 2008, she said.
Gupta “was upset, he was stressed, he was running his hands through his hair, which he does when he was stressed,” Geetanjali Gupta testified. “He’s usually a very calm and collected person.”
‘Would Not Lie’
The defense also showed jurors an e-mail which Geetanjali Gupta sent her father on Oct. 29, 2008, that stated, “How bad are things with the Raj fund?”
She said she had a subsequent discussion with her father about his investments on the telephone.
During cross-examination, Assistant U.S. Attorney Reed Brodsky asked Gupta’s daughter, “You love your father?”
“Yes I do,” she said.
“Would you do anything you could to help your father?” Brodsky asked.
“I would do many things to help my father, but I would not lie,” she answered.
Another witness called by the defense today was James Roth, a Goldman Sachs employee who prepared documents for Gary Cohn, the firm’s president, for a July 31, 2008, visit with Rajaratnam at Galleon’s Madison Avenue offices.
The defense showed jurors a briefing memo Roth prepared for the meeting between Goldman Sachs executives at Galleon that informs Cohn, “You saw Rajaratnam at a dinner hosted by Steven Cohen in February 2007,” and another item that stated, “You saw Rajaratnam at an NYU Child Study Center event in Dec. 2008.”
Yesterday, the defense had Richard Schutte, the former president of Galleon’s domestic unit, testify about the relationship between Galleon and Goldman Sachs and that Galleon had lawful sources of information for its trades.
Defense lawyers also pointed to records showing Gupta in a meeting about malaria prevention with a United Nations official around the time he allegedly tipped Rajaratnam to the Buffett deal.
Character witnesses including Gupta’s childhood friend testified that Gupta was honest and forthright.
The defense had pressed Rakoff to admit e-mails from Loeb and wiretap recordings of Rajaratnam’s mobile phones from Aug. 7, 2008, and Aug. 22, 2008.
According to Frankel, Loeb can be heard on the FBI recordings telling Rajaratnam that he usually gives information to Adam Smith, then a Galleon trader. Smith has pleaded guilty and is aiding prosecutors.
“Loeb says, ‘Since I’ve normally given this to Adam to give to you, this goes to you and Adam,’” Frankel said, quoting from a transcript of a conversation between Loeb and Rajaratnam. “I give it to a couple of guys on the street, I call you and Adam first.”
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).