Rajat Gupta trial Day 13: US Government rests, Gupta likely to testify

On Day 13, the US government concluded its arguments in the trial of Rajat Gupta, the former global head of McKinsey & Co., who has been charged with insider trading. "Your honour, the government rests," said Assistant US Attorney Reed Brodsky at 3:10 pm on Thursday.

Ending weeks of speculation, Gupta's counsel Gary Naftalis told the judge that his client is "highly likely" to take the stand next week . Observers said this could be a make-or-break decision. The question is whether Gupta manages to convince the 12-member jury that he didn't pass on corporate secrets. Experts point out that connecting with the jury is often critical when the defendant decides to testify.

After the government rested, the Gupta's legal team presented its witness Richard Feachem, Professor of Global Health at the University of California, Berkeley, to testify about Gupta's character. "I found Rajat to be a man of exceptional honesty and truthfulness," he said.



Sir Feachem, who also teaches at the University of California, San Francisco, has served as Under-Secretary General from 2002 to 2007 at the United Nations and he was also the founding Executive Director of the Global Fund to Fight AIDS, Tuberculosis and Malaria during this period. Feachem told the jury that he met Gupta in 2002 when he served as a board member as well as advisor to the Global Fund.

Gupta's lawyers want the jury to hear highly-respected professionals say good things about their client, who is recognized for his philanthropic work including setting up the Indian School of Business in Hyderabad, raising $1 billion in relief funds after the Gujarat earthquake in 2001 and helping tackle diseases like Malaria and AIDS.


The prosecution, however, has argued that Gupta's charitable work has no relevance to the charges against him. Judge Jed Rakoff is allowing the the defendant's team to present only limited testimony relating to his character. "If Mother Teresa were charged with bank robbery, the jury would still have to determine whether or not she committed a bank robbery," he has previously said.  

Gupta, charged with securities fraud and conspiracy, allegedly passed on insider information to billionaire hedge fund manager Raj Rajaratnam about Goldman Sachs Group Inc. and Procter & Gamble Co. while serving as a director for both. Rajaratnam, co-founder of the now defunct Galleon Group Hedge Fund LLP, was convicted of insider trading last year and is serving an 11-year-prison sentence. Rajaratnam did not take the stand in his trial.

On cross-examination, Brodsky asked Feachem if he knew about Gupta's association with Galleon. "Absolutely not," he replied in a clipped British accent.

Gupta "jipped"
Gupta's counsel also presented the video deposition of Ajit Jain, a senior executive at Berkshire Hathaway Inc., who could not be present in person. Jain testified that in January 2009 Gupta had told him about being "jipped, swindled or cheated" by Rajaratnam on their joint-fund Voyager Capital Partners Ltd, which resulted in the loss of $10 million for the defendant.

Jain said that Gupta had told him about the loss before Rajaratnam was arrested in October 2009. The Berkshire executive added that not being a "confidant" of the defendant, he was "fairly shocked" to hear this.

Gupta's counsel is trying to convince the jury that the ex-McKinsey honcho and Rajaratnam were not on good terms. Anil Kumar, a government witness, on being questioned by Naftalis has testified that Gupta was considering suing Rajaratnam for the monetary loss. Kumar, a former McKinsey senior partner, has pleaded guilty to passing secrets to Rajaratnam.

In one instance, Gupta allegedly called Rajaratnam minutes after a Goldman Sachs board meeting on September 23, 2008 to tell him that Warren Buffett-controlled Berkshire 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.  

Jain, a Berkshire employee, said on the pre-recorded video cross-examination that that he heard about the Berkshire-Goldman Sachs deal only after it had been publicly announced.                                                                                                                    

Recorded voice-messages played
The prosecution on Friday also submitted as evidence voicemails exchanged between Gupta and Rajaratnam, whose phone had been bugged by the US Federal Bureau of Investigation.

In one voice message at 6:20 pm on September 23, 2008, Gupta says, "Hey Raj, Rajat here. Um calling to catch up whenever you get a chance. Bye."

In another message left on Rajaratnam's answering machine on October 10, 2008, Gupta says, "I know it must be an awful and busy week. I hope you are holding up well."

Blankfein concludes testimony
Earlier in the day, Naftalis cross-examined Goldman Sachs Chairman Lloyd Blankfein , who testified for the government on Monday and Thursday.

Naftalis tried to establish that other Goldman Sachs employees were leaking information. For instance, he pointed out that news of the investment bank firing 10 per cent of its workforce was published in The Wall Street Journal on October 23, 2008 before the staff was informed. "This is a serious matter," asked Naftalis. "And it is a serious matter that the world becomes aware of it through some leak by an employee."

The date is relevant because Gupta also allegedly phoned Rajaratnam 23 seconds after an October 23, 2008 board meeting to tell him that the investment bank would report a fourth quarterly loss. The jury has heard a call made the next day in which Rajaratnam tells another Galleon employee, "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." Naftalis also argued that Goldman Sachs directors very likely knew about the quarterly loss by October 13.  

Brodsky countered by asking Blankfein if the article contained any information on Goldman Sachs shares losing value, which was discussed in the board meeting. "No," he replied.  

Earlier, Blankfein told the jury that information, which Gupta allegedly leaked, was confidential and that the defendant, as a non-employee director, was not authorized to disclose classified matters discussed at its board meetings.  

Gupta's team has previously tried to suggest that Rajaratnam's decision to buy Goldman Sachs shares in September 2008 was based on the potential $10 billion that it would receive under the U.S. government's TARP (Troubled Asset Recovery Program) program to bail out the banks around that time.

Naftalis quizzed Blankfein on Buffett's offer being smaller than the government offer, which also had more favourable terms. Blankfein agreed that TARP had been better on "specific financial terms". However, he later told Brodsky that a government injection of money came with "adverse" consequences for "reputation and regulation".

Next week
Gupta's counsel is expected to wrap up its case by Tuesday following which the jury will begin its deliberations.