Gupta Trial Deliberations Begin in Insider Trading Case

Former Goldman Sachs Director Rajat Gupta
Rajat Gupta, former Goldman Sachs Inc. director and former senior partner at McKinsey & Co., arrives at federal court with his lawyer Gary Naftalis, in New York on June 14, 2012. Photographer: Peter Foley/Bloomberg

The fate of Rajat Gupta, the former Goldman Sachs Group Inc. and Procter & Gamble Co. director charged with insider trading, was placed in the hands of a jury as deliberations began in Manhattan federal court.

“Your duty is to decide the fact issues in the case and arrive, if you can, at a verdict,” U.S. District Judge Jed Rakoff told the panel, made up of 8 women and 4 men. “You are to perform your duty of finding the facts without bias or prejudice as to any party. You are to perform your final duty in an attitude of complete fairness and impartiality.”

Gupta, 63, who ran McKinsey & Co. from 1994 to 2003, is on trial for allegedly leaking secret tips to Galleon Group LLC co-founder Rajaratnam, 54, about New York-based Goldman Sachs and Cincinnati-based Procter & Gamble. Gupta left the Goldman Sachs board in 2010 and the P&G board last year.

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. At Rajaratnam’s trial last year, which ended with the hedge fund manager being convicted of insider trading, jurors deliberated for 12 days.

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.

Six Hours

Through almost six hours yesterday, prosecutors and a defense lawyer walked jurors through their differing interpretations of the evidence in a trial that’s now in its fourth week.

Assistant U.S. Attorney Richard Tarlowe told jurors that there was “overwhelming evidence” Gupta passed secret information to Rajaratnam, who was sentenced to 11 years in prison.

“Gupta abused his position as a corporate insider by providing secret information,” he said. Those leaks allowed “Rajaratnam and his criminal associates at Galleon” to make millions of dollars through illicit trades, he said.

‘Urgent Call’

Tarlowe began his presentation by focusing on trades related to Omaha, Nebraska-based Berkshire. He said the Galleon hedge fund firm 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.”

In the defense closing argument, attorney Gary Naftalis decried what he called the lack of “real, hard, direct evidence” in the U.S. case.

He 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?” he asked, saying the U.S. tried to “bamboozle” jurors with “meaningless witnesses.”

Naftalis belittled phone records relied on by prosecutors.

“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.

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

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