Rajat Gupta trial Day 12: Smiling Goldman Sachs chief waits in witness box

On Day 12, Goldman Sachs Group Inc. Chairman Lloyd Blankfein sat with a half smile in the witness box as the lawyers and judge huddled in one of the longest sidebars of the Rajat Gupta trial held out of the jury's earshot.

For over 15 minutes, Blankfein looked around at the packed courtroom, which stared back at him. Observers have remarked on the high number of objections and sidebars as the prosecution and defendant's teams fight over every inch of ground.

On Thursday, Blankfein testified that that Gupta was not authorised to disclose the quarterly earnings of the investment bank in March 2007 and September 2007, which he learned as a board member. "Did you authorise Mr Gupta to disclose," asked Assistant US Attorney Reed Brodsky. "No," he replied.

Gupta, the former global head of consultancy firm McKinsey & Co., is accused of passing confidential information about the investment bank to Raj Rajaratnam, co-founder of the Galleon Hedge Fund LLP.  

Rajaratnam was convicted of insider trading last year and is serving an 11-year-prison sentence. Gupta, charged with securities fraud and conspiracy, also allegedly told the billionaire hedge fund manager about dealings inside Procter & Gamble Co. while serving on its board.  

Earlier in the day, the prosecution tried to establish a pattern from 2007 and 2008 that involved Gupta leaking confidential information, including quarterly earnings, about Goldman Sachs or P&G and presented phone records showing a series of calls being exchanged between the two men, which were followed by Galleon buying or selling stocks on the same day or the next morning.  


Government witness James Barnacle Jr., a US Federal Bureau of Investigation agent, was questioned on graphs he prepared, which showed sudden spikes in Galleon's trading on Goldman Sachs or P&G stocks around the dates of Rajaratnam's calls with Gupta.  

Barnacle said that on October 23, 2008, a call was placed from Gupta's assistant line to the Galleon office just 23 seconds after the line disconnected from a Goldman Sachs call. Gupta's legal team, however, pointed out that the government cannot prove who was on the line or what was said.

The next morning, Galleon avoided $3.8 million in losses by selling 150,000 Goldman Sachs shares. A wiretapped conversation has Rajaratnam telling a friend, "I heard yesterday from somebody who's on the board of Goldman Sachs, that they are gonna lose $2 per share. The street has them making $2.50."

Unlike the Rajaratnam trial, the prosecution does not have a wiretap with Gupta's voice discussing insider tips. The government is trying to prove its case by showing that phone and trading records match up.

Barnacle said that Gupta and Rajaratnam exchanged 150 calls from March 2008 to December 2008. Gupta's team describes this as circumstantial evidence.

Gupta's voice is only on a July 29, 2008 call but it is not a basis for the US government's charges of securities fraud and conspiracy against the defendant. JudgeJed Rakoff allowed the wiretap to be played for the jury to get a sense of the relationship between the two men.  

In this call, Gupta responds to Rajaratnam's query about a rumour that Goldman Sachs is considering buying commercial bank Wachovia (now acquired by Wells Fargo & Co.) or insurance company American International Group Inc. Rajaratnam says, "And there's a rumor, that Goldman might look to buy a commercial bank." He also says, "Have you heard anything along that line?" Gupta says, "Yeah, this was a big discussion at the board meeting."

Gupta's lawyer Gary Naftalis has argued that the prospect of Goldman Sachs acquiring a commercial bank was already in analyst reports.  

The prosecution, however, asked Blankfein if analyst reports had mentioned an insurance company like AIG or they contained discussions from the board room. "No," he replied for both questions.  

Blankfein had testified on Monday that all board meetings were confidential including the Warren Buffett deal. Gupta allegedly called Rajaratnam minutes after a Goldman Sachs board meeting on September 23, 2008 to tell him that Warren Buffett's Berkshire Hathaway Inc. was going to inject $5 billion in the investment bank. A few minutes before the market closed that day, Rajaratnam bought more than 200,000 Goldman Sachs shares.  

Gupta's service at Goldman Sachs
On cross-examination, Gupta's counsel tried to establish him as a highly-respected professional in the corporate world. Naftalis, for instance, described Gupta as "prominent" man that Goldman Sachs did not want to lose as a director to private equity firm Kohlberg Kravis Roberts & Co (KKR). "You on behalf of Goldman Sachs asked Mr Gupta to please stay," Naftalis asked the witness.  

Similar to his testimony given on Monday, Blankfein said that he had initially accepted Gupta's plan to leave the board in 2008 but then asked him to stay. The Goldman Sachs chief explained that a director leaving in the midst of the financial crisis could be construed as a sign of instability inside the firm.

Naftalis persisted about the ceremonial cufflinks given to Gupta to honor his "long and good" service. "It wasn't long but it was good," Blankfein replied, prompting the court including Gupta to laugh. Naftalis also posed questions about how Goldman Sachs regarded Rajaratnam's Galleon.  "He was an important client," said Blankfein.

The defendant's side is trying to convince the 12-member jury that in the July 2008 call, Gupta was only trying to reassure an important client like Rajaratnam that Goldman Sachs was in a good financial position. On the call, Rajaratnam says that he wants to check up on rumours ahead of his meeting with Goldman Sachs President Gary Cohn.

Family moment
During cross-examination, Naftalis asked Blankfein about whether he had previously described McKinsey as the "greatest" consulting firm in the world. While Judge Rakoff sustained the prosecution's objection to this line of questioning, he added that his wife and daughters were the greatest consulting firm in the world.

As the courtroom was filled with laughter, Gupta smiled and momentarily turned in his chair to look at his wife and daughters sitting behind him in the public gallery.  

Outside courtroom buzz
Blankfein will return on Friday to finish the cross-examination. Out of the courtroom, the Goldman Sachs chief declined to comment on the case but chatted on other topics. He even produced a family photo taken on his daughter's high school graduation on Wednesday.

Neither did he seem to have minded the several objections and long sidebar. "Let me put it this way," he said. "There are worse things than sitting around and waiting."