After Raj Rajaratnam got what prosecutors say was an illegal tip about Goldman Sachs Group Inc, a partner at Galleon Group LLC who was excluded from the trade turned red-faced and angry, a witness at the Rajat Gupta trial testified.
Prosecutors claim that Gupta, who was a Goldman Sachs director, tipped Rajaratnam on September 23, 2008, that Warren Buffett’s Berkshire Hathaway Inc would make a $5 billion investment in the firm. Gupta is on trial for securities fraud and conspiracy in Manhattan federal court.
Ananth Muniyappa, then a Galleon trader, told jurors yesterday that Rajaratnam instructed him to hurriedly buy Goldman Sachs shares that day, before the Buffett deal was announced. On Wednesday, Muniyappa described the reaction of Leon Shaulov, the Galleon senior portfolio manager who hadn’t bought shares in Goldman Sachs, when the Buffett transaction became public and the shares rose after the close of trading on the New York Stock Exchange.
“He was pretty angry,” Muniyappa told jurors. “Hair all over the place, red face, eyes popping out.”
Gupta, who ran the consulting firm McKinsey & Co from 1994 to 2003, is accused of passing insider tips to Rajaratnam.
Rajaratnam is serving an 11-year prison sentence for insider trading.
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Prosecutors say Gupta, 63, leaked inside information to Rajaratnam about New York-based Goldman Sachs and Cincinnati-based Procter & Gamble Co, the world’s largest consumer- products company. Gupta, who was a director at both companies, denies wrongdoing. The maximum term for securities fraud is 20 years.
Muniyappa’s testimony, which didn’t directly implicate Gupta in wrongdoing, is part of the government’s attempt to detail the circumstances surrounding the alleged Goldman Sachs tip. Another witness, Caryn Eisenberg, Rajaratnam’s personal assistant at Galleon, yesterday testified about an “urgent” call she received immediately before Galleon bought 267,000 Goldman Sachs shares. Prosecutors say Galleon earned almost $1 million on the trade.
In his testimony on Wednesday, Muniyappa read from an e-mail that Shaulov, then a Galleon managing director and partner, sent to another partner, Gary Rosenbach, at 6:16 p.m. on September 23, 2008.
“Thx for the heads up,” wrote Shaulov, who, according to his e-mail, had made a $170 million bet that financial stocks including Goldman Sachs would fall. “Not one word from anyone. Thanks very much. All I get is sick dilution.”
Shaulov also wrote, “What I give vs what I get back is disgusting.” He ended his e-mail with two expletives.
Neither Shaulov nor Rosenbach has been accused of wrongdoing.
Rosenbach replied by writing “number,” apparently a request for Shaulov’s telephone number, Muniyappa testified. The next morning, Rosenbach sent an e-mail to Rajaratnam saying, “I spoke to Leon & believe I diffused him.”
Shaulov’s lawyer, Andrew Levander, didn’t immediately return a phone call seeking comment on on Wednesday’s testimony. Rosenbach didn’t immediately return a phone message left at his home.
US District Judge Jed Rakoff let prosecutors introduce the e-mail into evidence over the opposition of Gupta’s lawyers.
In court papers, prosecutors say they want to introduce a wiretapped phone conversation between Rajaratnam and Galleon trader Ian Horowitz about Shaulov made the day after the Buffett investment. The call hasn’t yet been played in court.
“Leon was very upset,” Rajaratnam told Horowitz on the September 24, 2008, call, according to court papers. “I always am good with him. I always call him in. I tell him everything, you know? AMD, IBM, everything.”
Prosecutors say this is a reference to Advanced Micro Devices Inc. and International Business Machines Corp. Rajaratnam was convicted of illegal trading in both stocks.