Lawyers for Rajat Gupta, the former Goldman Sachs Group Inc. (GS:US) director accused at trial of passing inside tips, said they have “compelling” evidence that bank executive David Loeb shared inside information with Galleon Group LLC co-founder Raj Rajaratnam.
Loeb passed information about Intel Corp. (INTC:US) and Apple Inc. to Rajaratnam, according to excerpts of two phone calls tapped by the Federal Bureau of Investigation and submitted by Gupta’s lawyers. The defense obtained the documents after Rakoff ordered the government to turn over all evidence of other Goldman Sachs tippers relied on by Rajaratnam.
The Manhattan jury weighing the charges against Gupta, a former Goldman Sachs director accused of tipping Rajaratnam, never heard that evidence during his trial. U.S. District Judge Jed Rakoff ruled that the phone calls and e-mails were inadmissible hearsay. The defense rested its case yesterday and the jury may start deliberations this afternoon.
David Frankel, an attorney for Gupta, told Rakoff on June 11 that the evidence about Loeb was “crucial” to the defense and proved “that another person committed an act of which the defendant stands accused.”
Gupta is accused of leaking inside information to Rajaratnam about Goldman Sachs and Procter & Gamble Co. (PG:US), where Gupta was also a director.
Gupta is charged with one count of conspiracy and five counts of securities fraud, which carries a maximum term of 20 years in prison. He has pleaded not guilty to the charges. Rajaratnam is serving an 11-year prison sentence for insider trading
“Loeb had a history of feeding information to Rajaratnam” Frankel said. He said there was evidence of Loeb’s tipping, including repeated calls to the hedge fund manager on Oct. 23, 2008, the same day prosecutors say Gupta tipped Rajaratnam about Goldman Sachs earnings.
Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on the defense papers.
“Loeb is still employed by Goldman Sachs,” Michael DuVally, a spokesman for the New York-based company said yesterday, declining to comment further on Loeb’s status.
Loeb, a salesman whose job required him to keep in regular contact with hedge fund managers, hasn’t been accused of wrongdoing. Prosecutors have said in court that he told Rajaratnam about Intel, Apple and Hewlett-Packard Co. (HPQ:US), none of which are involved in Gupta’s case.
“Mr. Loeb’s conduct was entirely consistent with the securities laws and regulations,” his lawyer, Frank Wohl of Lankler Siffert & Wohl LLP, said in an e-mailed statement. “He did not provide any material inside information to Mr. Rajaratnam or anyone else. Mr. Loeb had no knowledge of any of the Goldman Sachs information at issue in the case against Mr. Gupta.”
Included in the material Gupta’s team wanted to show the jury were e-mails in which Loeb calls Rajaratnam “big daddie” and in which the Goldman Sachs executive allegedly provided Rajaratnam with what Gupta’s lawyers say is manufacturing data about Intel and Apple Inc. (AAPL:US)
“Two illegal tips were captured by the wiretap recordings of Rajaratnam’s cell phone on Aug. 7, 2008 and Aug. 22, 2008,” Gupta’s lawyers said in court papers.
On Aug. 5, 2008, Loeb sent an e-mail to his Goldman Sachs colleague Henry King, an analyst in Asia, asking if he could “try to get an innie update,” according to Gupta’s court papers.
The next day, King responded in an e-mail with the subject line “[You] would not believe this,” according to the court papers. Loeb soon replied to King, “craziness doc!!!!!!!! What’s going on?” according to the defense papers.
Loeb tried calling Rajaratnam at his Galleon office and then e-mailed him on Aug. 7, 2008, according to the papers.
“DR. RR re IMPORTANT,” Loeb allegedly wrote to Rajaratnam. “[I] need to reach [you] with some PARTICULARLY important data before open if possible.” Loeb also asked Rajaratnam in the e-mail whether he should “tell ADAM instead,” according the court papers. Adam Smith, a former Galleon trader, has pleaded guilty and is cooperating with the U.S. insider-trading probe.
After the e-mail, Rajaratnam told Loeb to call him on his mobile phone, which federal authorities were tapping, according to the court papers. At 8:34 a.m. the two men spoke, Gupta’s lawyers said.
“Loeb gave Rajaratnam on the call detailed statistics from his source ‘Henry’ (Henry King) on Intel’s ‘new’ chipset sales figures,” the defense said in its court filing. That elicited “two expressions of ‘Wow’ from Rajaratnam,” according to the court papers.
“Loeb explained that Raj should ‘help protect Henry’ by not sharing this information, which Loeb was disclosing to only ‘a couple of guys on the Street,’” the defense said in its filing, again purportedly quoting Loeb.
“No, absolutely not, I don’t talk to anybody,” Rajaratnam responded, according to the filing.
On another wiretapped call on Aug. 22, 2008, “Loeb told Rajaratnam that Henry had statistics ‘directly from Apple,’ which Loeb was being ‘very careful’ and ‘directed’ about sharing,” the defense wrote in its filing, quoting Loeb in part.
Rajaratnam responded, “I’m not talking to anybody,” the defense wrote.
King, like Loeb, hasn’t been charged with wrongdoing. Two people familiar with the probe said in February that both men are the subject of a criminal investigation by U.S. authorities in New York.
Gupta’s lawyers completed their case yesterday without their client testifying. Gupta decided over the weekend not to testify after his lawyers told the judge on June 8 that it was “highly likely” he would take the stand.
The defense has argued that Gupta parted ways with Rajaratnam after he discovered the fund manager had withdrawn money without his knowledge from the Voyager Fund, an investment they had created together.
Gupta’s lawyers have said he had no motive to tip Rajaratnam, pointing to his loss of a $10 million investment in a Galleon fund and Gupta’s subsequent claim that Rajaratnam cheated him.
Yesterday, Rakoff agreed to allow Gupta’s eldest daughter, Geetanjali Gupta, to testify about her father’s demeanor from September 2008 through November 2008, a period when the government alleges Gupta was passing Rajaratnam tips.
Geetanjali Gupta said she had several conversations with her father about his investment with Rajaratnam beginning on Sept. 20, 2008, when she was celebrating her 30th birthday with her parents. The discussions continued until Thanksgiving of 2008, she said.
Gupta “was upset, he was stressed, he was running his hands through his hair, which he does when he was stressed,” Geetanjali Gupta testified. “He’s usually a very calm and collected person.”
The defense showed jurors an e-mail which Geetanjali Gupta sent her father on Oct. 29, 2008, that stated, “How bad are things with the Raj fund?”
She said she had a subsequent phone discussion with her father about his investments.
During cross-examination, Assistant U.S. Attorney Reed Brodsky asked Gupta’s daughter, “You love your father?”
“Yes I do,” she said.
“Would you do anything you could to help your father?” Brodsky asked.
“I would do many things to help my father, but I would not lie,” she answered.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
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