Raja Gupta trial Day 2: Unravelling the mystery of the September 2008 call

For almost a year, we have been hearing about a call that billionaire hedge fund manager Raj Rajaratnam received on September 23, 2008 from Rajat Gupta, a former director at Goldman Sachs Group Inc.



On the second day of Gupta's insider trading trial, US government witnesses painted a vivid picture of what happened in the few minutes between that call and before the financial market closed that day.

Caryn Eisenberg, Rajaratnam's secretary, testified about patching through an "urgent" call to her boss on September 23 at around 3:54 pm.  Eisenberg said it was from a person on a list of ten "important people" who Rajaratnam could be disturbed for. Gupta was on the list as well as others who have already pleaded guilty to insider trading. Eisenberg was not able to identify the caller that day. The prosecution has previously said that it has a record of that call being placed from Gupta to Rajaratnam at that time.

The US government also called as a witness Ananth Muniyappa, a junior trader at Rajaratnam's Galleon Group LLP hedge fund, who testified about making an order to buy 100,000 shares of Goldman Sachs that day.   

Assistant US Attorney Richard Tarlowe asked him what Rajaratnam was doing before placing that order. "He was either on the phone or just getting off," responded Muniyappa. Tarlowe then asked what stood out about that trade from almost four years ago. "Because it was a good chunk of stock for that time of the day," replied Muniyappa.

The prosecution is trying to establish that after a board meeting on September 23, 2008, Gupta called Rajaratnam with confidential information about Warren Buffett's Berkshire Hathaway investing $5 billion in Goldman Sachs.

Besides Muniyappa, the government also presented evidence to show Goldman Sachs shares were immediately being procured by Galleon co-founder Gary Rosenbach. Both combined, more than 200,000 Goldman Sachs shares were bought that eventually yielded a more than $800,000 profit.  

Overall, the prosecution today made the September 23, 2008 call come alive for the 12-member jury, which includes a nurse, a teacher, a stay-at-home mom and a beauty consultant.  

The US lawyers also presented a floor map of the Galleon office on Madison Avenue to show how the desks were positioned. Tarlowe even asked Muniyappa whether Rajaratnam, when in his office, could convey verbal messages to him without shouting. "Yes," said Muniyappa. These details created a visual image of how trade was once conducted at the Galleon office.  

Still a challenge
But Tuesday's testimony still doesn't prove that Gupta told Rajaratnam about the $5 billion investment. The prosecution's challenge is to convince the jury that Gupta leaked secret information on that call.  

Gupta has been charged with securities fraud and conspiracy for allegedly passing secrets of Goldman Sachs and Procter & Gamble to Rajaratnam. The former global head of McKinsey & Co. is the most high-profile executive to be embroiled in the sweeping investigation on insider trading on Wall Street. Rajaratnam was convicted in May 2011 and sentenced to 11 years in prison in October.

The relationship between the two South Asians remains confusing. Eisenberg described how Gupta had his own pass to enter Galleon's office and that he would come by often. But Eisenberg also told the jury that her boss sometimes avoided meeting Gupta. "Raj made me lie to Rajat…he doesn't want to see him," reads her text message to a colleague. This works well for Gupta's counsel, which is making a case that the relationship between them had deteriorated when the tips were allegedly given.

Still, the prosecution has wiretaps in their arsenal. One recorded phone conversation from the day after the September 23 board meeting has Rajaratnam telling Ian Horowitz, a Galleon trader, "I got a call at 3:58…saying something good might happen to Goldman."

After intense wrangling between the prosecution and Gupta's legal team, Judge Jed Rakoff has allowed the hearing of these tapes. But they can be admitted as evidence only if the prosecution can prove a conspiracy. US government lawyers are taking a risk because the failure to prove a conspiracy could also lead to a mistrial.

Lighter vein
The day also had its lighter moments. Gupta, dressed in a dark suit and red tie, suppressed a smile when the government showed a picture, resembling a mug shot, of Rosenbach wearing a crooked smile.  

Judge Rakoff's off-the-cuff remarks also got a few laughs. The biggest chuckle was when he read out a letter from a jury member with a logistical request. The letter was addressed to "Dear Sir or Madame."  "I guess it's hard to tell in a gown," the judge joked.