Gupta Seeks Identity of Possible Tipper ‘X’ at Goldman, P&G
January 27, 2012, 1:12 PM ESTBy Patricia Hurtado, David Glovin and Bob Van Voris
Jan. 27 (Bloomberg) -- Lawyers for Rajat Gupta, the former Goldman Sachs Group Inc. and Procter & Gamble Co. director who has denied U.S. charges he leaked stock tips to Raj Rajaratnam, are investigating whether the hedge fund manager had a different inside source at the companies.
At a Manhattan court conference Jan. 20, defense attorney Gary Naftalis complained federal prosecutors hadn’t turned over documents he wanted on whether Rajaratnam or others at his hedge fund, Galleon Group LLC, had a source inside Goldman Sachs or P&G other than Gupta, a transcript of the proceeding stated. Gupta is accused of leaking information about both companies.
At the hearing, Naftalis said Gupta’s defense may turn on whether “there are people at Goldman Sachs and at Procter & Gamble who are giving out inside information, whether it be about Goldman or Procter & Gamble or affiliates.” That would “constitute real exculpatory information for a real defense that the source of any information here is not us but somebody else.”
Assistant U.S. Attorney Reed Brodsky told the judge that prosecutors had “no information, zero, no witness statements” and no other evidence that anyone other than Gupta tipped Rajaratnam about Goldman and P&G, according to the transcript.
At the same time, Brodsky said prosecutors had turned over documents that the defense contends may point to a Rajaratnam source at Goldman or P&G other than Gupta. The government said the files don’t involve tips that relate to the crimes with which Gupta is charged.
‘Mr. X’
As U.S. District Judge Jed Rakoff pressed prosecutors to identify the purported source, who he called, “Mr. X,” Brodsky replied, “We’re happy to identify the individual to them.” The prosecutor added that the documents “would negate rather than support the notion that Mr. X was tipping Mr. Rajaratnam about material nonpublic information.”
Near the conclusion of the discussion, Rakoff told Naftalis the government is “going to give you Mr. X, they’re going to point you to at least areas where they think Mr. X’s possible involvement in leaking information comes up in the stuff you have.”
Naftalis didn’t return a call seeking comment. Paul Fox, a spokesman for P&G, and David Wells, a spokesman for Goldman Sachs, declined to comment.
Prosecutors and defense attorneys are scheduled to return to Rakoff’s courtroom today to continue arguments over the documents. The defense says the government is required to turn them over to aid their case.
Faces April Trial
Gupta, who faces trial in April on five counts of securities fraud and one count of conspiracy, faces as long as 20 years in prison if convicted on each of the securities fraud charges and as long as five years if convicted of conspiracy, according to the government. He also faces a fine of as much as $5 million. Rajaratnam is serving an 11-year prison term after being convicted of directing the biggest hedge fund insider trading scheme in U.S. history.
The indictment cites three instances in which Gupta tipped Rajaratnam, 54. The ex-Goldman Sachs director is accused of telling the hedge fund manager about Berkshire Hathaway Inc.’s $5 billion investment in the New York-based bank in September 2008, about Goldman Sachs’s unexpected fourth-quarter loss that year, and about Cincinnati-based P&G’s poor performance in late 2008.
The indictment cites close ties between the two men, saying Gupta, 63, of Westport, Connecticut, invested $2.4 million in at least two Galleon offshore funds, put $10 million into a venture with Rajaratnam called Voyager Capital Partners, and committed $22.5 million to a fund they created to focus on emerging markets in Asia.
Possible New Charges
According to the transcript of the Jan. 20 conference, prosecutors said they may file new charges by Jan. 31 that Gupta also tipped Rajaratnam about P&G’s 2008 sale of Folgers Coffee Co. to J.M. Smucker Co. Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, didn’t immediately return a call seeking comment.
Last week, Naftalis said documents he received from prosecutors were unclear on the number of possible sources Rajaratnam had.
“It’s unclear whether it’s one source, two sources or ten sources,” the defense lawyer said.
The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court for the Southern District of New York (Manhattan).
--Editors: David E. Rovella, Patrick Oster
-0- Jan/27/2012 17:50 GMT
To contact the reporters on this story: Patricia Hurtado in Manhattan federal court at pathurtado@bloomberg.net; David Glovin in New York at dglovin@bloomberg.net; Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net.
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
