Bloomberg News

Goldman’s Blankfein to Testify at Gupta Trial, U.S. Says

May 31, 2012

Goldman Sachs Group Inc. (GS:US) Chief Executive Officer Lloyd Blankfein will testify at the insider- trading trial of the bank’s former director Rajat Gupta, a prosecutor said.

With jurors briefly out of the courtroom today, Assistant U.S. Attorney Reed Brodsky told U.S. District Judge Jed Rakoff in Manhattan that prosecutors would call Blankfein as their next-to-last witness before wrapping up about June 6. Brodsky didn’t say what Blankfein would testify about.

Blankfein testified at last year’s trial of Galleon Group LLC co-founder Raj Rajaratnam, to whom Gupta is accused of leaking inside information. Rajaratnam was convicted and sentenced to 11 years in prison. Gupta denies wrongdoing.

At Rajaratnam’s trial, Blankfein said Gupta violated Goldman Sachs’s confidentiality policies by allegedly telling Rajaratnam about the firm’s earnings and strategic plans.

“We don’t want information about our company to get outside before the time is appropriate,” Blankfein testified on March 23, 2011.

Michael DuVally, a Goldman Sachs spokesman, declined to comment on Blankfein as a witness in Gupta’s trial.

Defense attorney Gary Naftalis identified likely defense witnesses, listing Gupta family members and Gupta’s personal assistant. Naftalis also said he planned on reading deposition testimony from Berkshire Hathaway Inc. (A:US)’s reinsurance chief, Ajit Jain, a close friend of Gupta’s. Naftalis said he didn’t know yet whether Gupta will testify on his own behalf.

Berkshire Investment

Gupta, who ran McKinsey & Co. from 1994 to 2003, is on trial for leaking tips about Goldman Sachs and Procter & Gamble Co. (PG:US), where he was also a director. One of the alleged tips involved a Berkshire Hathaway investment in Goldman Sachs. Gupta has pleaded not guilty.

Rajaratnam and Gupta are the biggest figures yet to be caught up in a nationwide insider-trading probe. Gupta is charged with conspiracy and securities fraud, which carries a maximum 20-year prison sentence.

Earlier today, a government witness testified that Gupta joined a Galleon executive on a marketing trip to the Middle East and was named by Rajaratnam to be chairman of a Galleon investment fund.

Ayad Alhadi, who was a Galleon marketing executive from February 2008 to October 2009, told jurors about Gupta’s role in helping Galleon recruit clients. Prosecutors offered the evidence to highlight the business relationship between the two men and to provide a motive for Gupta’s alleged leaks.

‘Friend and Adviser’

“He was going to be helping Galleon meet prospective investors,” Alhadi said of a two-day trip he and Gupta took to the United Arab Emirates beginning on March 31, 2008. Before that trip, Alhadi said he sent an e-mail to a banker in Switzerland calling Gupta “a friend and adviser to Galleon.”

Alhadi also told jurors about a meeting in Rajaratnam’s office on March 28, 2008, where the Galleon co-founder said Gupta, who was present, “would be the new chairman of Galleon International” and responsible for investments outside the U.S.

“I think I congratulated him,” Alhadi said. Gupta may not have been officially named Galleon International chairman, Alhadi said.

Alhadi testified that after the trip, one of the sovereign wealth funds he and Gupta met with on their Middle East trip agreed to invest $25 million in a Galleon fund and pledged to invest another $50 million four days after meeting them again at Galleon’s office in New York. Alhadi described this development in an e-mail to his Galleon superiors as “a startling investment.”

He testified that in September 2008, Gupta asked for the “contact details” of potential investors the two had met in the Middle East.

$400 Million

“He said he was raising a telecommunications fund with the current or former chairman of AT&T,” Alhadi testified. “He said AT&T would invest $400 million in this billion-dollar fund if Mr. Gupta could come up with the rest of the money.”

Alhadi said he heard nothing more about the possible fund after the conversation.

During cross-examination by one of Gupta’s defense lawyers, Robin Wilcox, Alhadi testified that agents with the Federal Bureau of Investigation appeared, unannounced, at his home at 6 a.m. on Aug. 3, 2011. He later met with prosecutors and agents two more times, he testified.

“Did you ever tell the government that for some investors, having a meeting with Mr. Gupta was like having a meeting with a rock star?” Wilcox asked.

“I don’t remember saying that,” Alhadi answered.

Kumar Testimony

With Alhadi’s testimony, prosecutors are seeking to counter a defense claim that Rajaratnam and Gupta had a falling out at the time of the alleged leaks. Defense lawyers say Rajaratnam lost $10 million that Gupta invested in a Galleon fund, prompting Gupta to consider a lawsuit.

Ex-McKinsey director Anil Kumar may testify as early as today, Brodsky told Rakoff. At Rajaratnam’s trial, part of Kumar’s testimony focused on the relationship between Gupta and Rajaratnam. Kumar has pleaded guilty to insider trading and is testifying for prosecutors in a bid for leniency.

Among defense witnesses named by Naftalis were Rick Schutte, Galleon’s former U.S. president; Richard Feachem, executive director of the Global Fund to Fight AIDS, Tuberculosis & Malaria; and Gregory Orman, Gupta’s financial adviser. Naftalis didn’t say what the witnesses would testify about.

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net; David Glovin in New York at dglovin@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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