Raj Rajaratnam, co-founder of the hedge fund Galleon Group LLC, smiled when the stock market closed after he got a phone call that spurred his hedge fund to hurriedly buy Goldman Sachs Group Inc. (GS:US) shares, a witness at the Rajat Gupta trial testified.
Caryn Eisenberg, who was Rajaratnam’s personal assistant at Galleon, was today’s first witness at the insider-trading trial of Gupta, formerly a Goldman Sachs director.
Eisenberg, a prosecution witness, testified that she received an “urgent” telephone call at around 3:54 p.m. on Sept. 23, 2008, that she put through to Rajaratnam in his adjacent office. She didn’t remember the identity of the caller but said it was a male voice and someone who was on a list of “important people” provided to her. She said the call was from a phone number of Gupta’s assistant.
Rajaratnam took the call, then spoke to a partner, Gary Rosenbach, who repeatedly urged traders to “buy Goldman Sachs,” she said. Galleon traders bought $43 million worth of Goldman Sachs shares, according to prosecutors.
After the close of the market, Goldman Sachs announced a $5 billion investment in the bank by Warren Buffett’s Berkshire Hathaway Inc. (A:US)
Goldman Sachs rose on news of the investment, generating a profit of almost of almost $1 million for Galleon, the government says.
The prosecutor, Assistant U.S. Attorney Reed Brodsky, asked Eisenberg about Rajaratnam’s demeanor after receiving the call.
“He was smiling more,” she testified, adding that the investment stood out in her mind because everyone at Galleon was discussing it the next day.
“It was memorable because Warren Buffett is a very important and influential man, and he didn’t typically make investments in companies like Goldman Sachs,” she said. “Everyone was still talking about it.”
Gupta, who ran the consulting firm McKinsey & Co. from 1994 to 2003, is accused of passing insider tips to Rajaratnam in a conspiracy that lasted from 2007 to January 2009. Rajaratnam is serving an 11-year prison sentence for insider trading.
Prosecutors say Gupta, 63, gave Rajaratnam material, nonpublic information about New York-based Goldman Sachs and Cincinnati-based Procter & Gamble Co. (PG:US), the world’s largest consumer-products company. Gupta was a director at both companies.
He’s charged with one count of conspiracy and five counts of securities fraud, which carries a maximum 20-year prison sentence.
A ‘Good Friend’
In her testimony this morning, Eisenberg said Gupta was considered a “good friend” of Rajaratnam’s who telephoned Galleon’s offices “many times” and would sometimes make unannounced visits.
She said that when she began working at Galleon’s offices in January 2008, Gupta’s name was one of five that appeared on the list of “important people” whose calls should be put through to Rajaratnam even if they called at the start or end of a trading day.
Eisenberg was told not to disturb Rajaratnam with any calls “unless they were people on a list I was given,” she testified. Reading from a notebook and a separate list she kept, Eisenberg said Gupta was identified on the documents as “a good friend -- chairman and CEO of McKinsey & Co.”
She also said other names on the “important people” list were Rajiv Goel, then an Intel Corp. managing director who later pleaded guilty to insider trading; Anil Kumar, a partner at the time at McKinsey who subsequently pleaded guilty to insider trading; Parag Saxena, a money manager; and Stanley Druckenmiller, who runs Duquesne Capital Management LLC.
Kumar and Goel -- who was nicknamed “Peter Pan” on the list -- both testified against Rajaratnam at his trial last year. Saxena and Druckenmiller haven’t been accused of wrongdoing.
During the almost two years that Eisenberg worked at Galleon, the list of important people grew to about 10 names, she said. One person added to the roster was Danielle Chiesi, then an analyst at New Castle Funds LLC, Eisenberg said. Chiesi later pleaded guilty to insider trading and was sentenced to prison.
List of Names
Another name added to the list was David Loeb, she testified. Loeb, Goldman Sachs’s head of Asia equity sales in New York and a managing director, hasn’t been accused of wrongdoing.
“He would call throughout the day, but not as frequently as some of the other callers,” Eisenberg said of Loeb.
E-mails to Druckenmiller seeking comment on today’s testimony weren’t immediately returned. Saxena is CEO of New Silk Route LLC, an investment firm co-founded by Gupta. A message left for Saxena at New Silk Route wasn’t immediately returned.
Gupta’s lawyers don’t dispute that Gupta and Rajaratnam were friends. They say the relationship soured after Rajaratnam lost $10 million that Gupta invested in an entity called Voyager Capital Partners. Lehman Brothers Holdings Inc. had declared bankruptcy on Sept. 15 of that year.
On cross-examination by Gupta’s lawyer David Frankel, Eisenberg said Rajaratnam sometimes directed her to lie to Gupta about his availability when Gupta either called or made unannounced visits to the office.
“Lying, as in saying he wasn’t in the office,” Eisenberg said, adding, “he may have snuck out of the building to avoid him.”
Frankel showed jurors excerpts of a Feb. 29, 2008, instant message exchange between Eisenberg and Anita Teglasi, another Rajaratnam assistant.
“Raj made me lie to Rajat,” Eisenberg wrote. “He doesn’t want to see him.”
“No way!” Teglasi replied.
“And Rajat is waiting around,” Eisenberg said.
“He is right behind me,” Teglasi replied, using the abbreviation for “laugh out loud.”
“He’s standing at his door waiting,” Eisenberg wrote. “He walked around looking for him.”
Frankel also showed an itinerary of a trip Rajaratnam took with a group of other fund managers to the Borgata hotel and casino in Atlantic City, New Jersey, in February 2008, where about six people were transported there via private helicopter.
Participants included Goldman Sachs president Gary Cohn and David Heller, former head of Goldman Sachs’s securities division.
“Rajat Gupta wasn’t on the list?” Frankel asked.
“No,” Eisenberg said.
Michael DuVally, a spokesman for Goldman Sachs, didn’t immediately return calls seeking comment about the trial testimony related to Loeb, Cohn or Heller.
Eisenberg’s testimony continues this afternoon.
The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).
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