Rajat Gupta “abused” his role as a director at Goldman Sachs Group Inc. and Procter & Gamble Co. by leaking secret tips to an associate, a prosecutor told the jury during closing arguments in Gupta’s insider-trading trial.
Assistant U.S. Attorney Richard Tarlowe told jurors in Manhattan federal court that there is “overwhelming evidence” Gupta passed secret information to Galleon Group LLC co-founder Raj Rajaratnam, the hedge-fund manager now serving an 11-year prison sentence for insider trading.
“Gupta abused his position as a corporate insider by providing secret company information to his longtime business partner and friend, Raj Rajaratnam,” Tarlowe said. These leaks allowed “Rajaratnam and his criminal associates at Galleon” to make millions of dollars through illicit trades, he said.
In the defense summation, attorney Gary Naftalis decried the lack of “real, hard, direct evidence” in the U.S. case.
“The prosecution failed here to prove that Mr. Gupta acted knowingly and willfully and with any specific intent to defraud,” he said in a conversational tone that contrasted with Tarlowe’s fiery closing.
Gupta, 63, who ran McKinsey & Co. from 1994 to 2003, is on trial for allegedly leaking secret tips to Rajaratnam, 54, about New York-based Goldman Sachs and Cincinnati-based Procter & Gamble Co. He left the Goldman Sachs board in 2010 and the P&G board last year.
U.S. District Judge Jed Rakoff, who’s presiding over the case, told jurors they will begin deliberations this morning, after he gives them instructions on the law.
Gupta is accused of conspiracy and five counts of securities fraud. The most serious charge against him carries a maximum prison sentence of 20 years.
Alleged tips by Gupta included information on a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. in Goldman Sachs on Sept. 23, 2008, and on Goldman Sachs losses in the fourth quarter of 2008. Prosecutors also said Gupta told Rajaratnam that P&G planned to sell its Folgers Coffee unit to J.M. Smucker Co.
Tarlowe began his presentation yesterday by focusing on trades related to Omaha, Nebraska-based Berkshire. He said Galleon bought more than 200,000 Goldman Sachs shares beginning around 3:54 p.m. on Sept. 23, 2008, after Rajaratnam received an “urgent” call from a man Tarlowe alleged was Gupta.
There was a single call to Rajaratnam’s direct line in the trading day’s final 10 minutes, Tarlowe said.
“And that call was from Gupta,” he said. “That evidence is devastating.”
The prosecutor replayed for jurors a Sept. 24, 2008, wiretapped phone conversation in which Rajaratnam tells an associate that he was told at 3:58 p.m. that “something good might happen to Goldman.”
Tarlowe assailed defense witnesses “who knew nothing about Gupta’s relationship” with Rajaratnam or about Galleon’s stock trades on Sept. 23, 2008.
“Those witnesses shed absolutely no light,” he said.
Tarlowe highlighted for jurors how Rajaratnam’s trading coincided with board meetings which Gupta attended when the government says vital company secrets were disclosed. He noted for the jury how telephone records show that repeatedly, after Gupta hung up on those board calls, phones that evidence shows he used were in contact with Rajaratnam’s office numbers. He called “devastating” the testimony from an ex-Galleon trader, Michael Cardillo, that Rajaratnam’s brother said Rajaratnam had a “guy” on P&G’s board.
Tarlowe said Gupta leaked the information because he wanted Rajaratnam’s help with a new fund he was starting, as well as a slice of the “extraordinary profits” at Galleon. Gupta was to become chairman of Galleon’s international fund, according to the prosecutor.
Rajaratnam, for instance, “bumped up” by $4 million Gupta’s stake in a Galleon investment after Gupta told him about a Goldman Sachs board discussion held in Russia, he said.
“Rajaratnam offered Gupta many benefits,” Tarlowe said. “What was good for Rajaratnam and Galleon was good for Gupta.”
Anticipating defense arguments, Tarlowe told jurors that a case built on circumstantial evidence, like the one against Gupta, is as strong as one based on eyewitness testimony. He also attacked a defense claim that Gupta wouldn’t tip Rajaratnam after he lost Gupta’s $10 million investment in a Galleon fund. Gupta passed along tips because he wanted his money back, Tarlowe said.
Naftalis told jurors that there’s no claim that Gupta himself traded illegally, no evidence of secret payoffs from Rajaratnam to Gupta and no eyewitness to any illegal tip.
“Where’s the beef in this case?” the lawyer asked, saying the U.S. tried to “bamboozle” jurors with “a parade of meaningless witnesses.”
Before his October 16, 2009, arrest by the U.S., Rajaratnam was viewed by the business community as honest and successful, Naftalis said, adding that Gupta was one of those who had been deceived.
“We don’t punish people for making mistakes, for being negligent, for trusting people, for not being smart enough to see through somebody that it took eight months of wiretaps for the government to find,” he said.
Naftalis belittled phone records which prosecutors said were proof of Gupta’s illicit tipping.
“There was no evidence of what was said in any conversation,” he said. He pointed out that prosecutors had no recordings of Gupta’s tips even after the Federal Bureau of Investigation tapped Rajaratnam’s mobile phone for eight months.
“There is not a single wiretap recording out of those thousands of wiretapped calls where Rajat Gupta gave any inside information,” he said. “None, zero.”
Naftalis told jurors that the wiretapped recordings they heard contain the unreliable “boasting” of Rajaratnam along with “second- or third-hand hearsay” that wasn’t subject to cross-examination.
“That’s the vice” of the U.S. case, he said.
He reminded the jury of the testimony from Ajit Jain, Berkshire Hathaway’s reinsurance chief and a close friend of Gupta’s, who testified that Gupta told him during a Jan. 12, 2009, luncheon that Rajaratnam had “gypped, swindled or cheated” him.
The defense lawyer also cited Galleon paperwork that the defense contends shows Rajaratnam hid from Gupta his withdrawal of $25 million from a fund in which they both invested.
‘Through the Heart’
He also said Gupta wanted to step down from the Goldman Sachs board on Sept. 12, 2008, before several alleged tips were passed. Goldman Sachs Chief Executive Officer Lloyd Blankfein testified that he talked Gupta out of resigning at the time.
“This resignation drives a stake through the heart of the government’s case,” Naftalis said. “He resigned. They begged him to come back. The only reason that he stayed is Goldman Sachs panicked, because Rajat Gupta is a prominent and respectable business leader. His resignation might cause panic in investors in a volatile market.”
Naftalis assailed the credibility of Blankfein, who spent three days on the stand and who the defense lawyer described as “a man with no memory of anything” and “less than candid.”
The lawyer disputed prosecutors’ claim that Gupta told Rajaratnam on Oct. 23, 2008, about Goldman Sachs’s losses after Blankfein gave the information to the board earlier in the day during what a Goldman Sachs executive called a “posting call.”
While Blankfein testified he had briefed board members about losses during that meeting, Naftalis argued that on the same day, Goldman Sachs had also announced it was laying off 3,250 people, which Blankfein testified he couldn’t recall.
“I suggest to you that no one could be that cold and callous and not remember that he fired 3,000 people, as if it happens every day,” Naftalis said. “If you can’t remember firing 3,000 people without any kind of notice, how can you pretend to remember anything about some posting call?”
Michael DuVally, a spokesman for Goldman Sachs, disputed the defense lawyer’s characterization of Blankfein’s testimony.
“Mr. Naftalis distorts what Mr. Blankfein said last week,” DuVally said. “Mr. Blankfein said he did not remember a particular news article about possible layoffs in 2008. He was never asked whether he remembered the layoffs, which of course, he does.”
In the government’s rebuttal, another prosecutor, Assistant U.S. Attorney Reed Brodsky, told jurors Blankfein was truthful when he testified he couldn’t recall specific meetings.
Brodsky said that for anyone to believe arguments posed by the defense, “they’d have to believe that Gupta was the unluckiest man in the whole world.”
“He’s not a victim of unlucky coincidences,” Brodsky said. “No one is above the law, neither his positions, power, money or good deeds give him the right to violate the law or give him a free pass for having violated it.”
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).