Federal prosecutors said they were prepared to summon Goldman Sachs Group Inc President Gary Cohn as a witness to rebut Galleon Group LLC co-founder Raj Rajaratnam’s defence in his insider-trading trial.
Assistant US Attorney Reed Brodsky told US District Judge Richard Holwell in Manhattan on April 12 that the government would call Cohn to testify if a defence witness, former Galleon US President Richard Schutte, was permitted to tell jurors about comments Cohn made at a meeting with Rajaratnam on July 31, 2008.
“That’s hearsay” and shouldn’t be allowed as evidence, Brodsky told the judge, according to a transcript of a “sidebar” conference that jurors and others in the courtroom couldn’t hear. If the defence witness testified about Cohn’s comments, Brodsky said, “We are prepared to call Cohn, and we would be allowed to do that as part of our rebuttal case.”
Schutte, who completed his testimony yesterday, wasn’t asked by Rajaratnam’s lawyers about Cohn’s comments at the meeting. Rajaratnam’s attorneys may finish their defense of the billionaire hedge fund manager on April 18. Brodsky told Holwell yesterday that prosecutors intended to present a rebuttal case. He didn’t mention Cohn or identify other potential witnesses.
“We have a bit of a rebuttal case we’re still preparing,” Brodsky said.
Lucas van Praag, a Goldman Sachs spokesman, declined to comment. Ellen Davis, a spokeswoman for US Attorney Preet Bharara in Manhattan, also declined to comment.
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INTEL, CLEARWIRE
Rajaratnam, 53, has been on trial since March 8 in the largest crackdown on hedge-fund insider trading in US history. The Sri Lankan-born money manager is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge- fund traders about a dozen stocks, including Goldman Sachs, Intel Corp, Clearwire Corp and Akamai Technologies Inc. He denies wrongdoing, saying he based his trades on research.
Summations in the case may begin next week, the judge said.
Gregg Jarrell, the top economist for the US Securities and Exchange Commission from 1984 to 1987, testified on Saturday as an expert witness for Rajaratnam. Jarrell, who now teaches at the University of Rochester’s graduate school of business in New York, said the tips Rajaratnam allegedly received weren’t material to Galleon or didn’t comprise inside information.
CERTAINTY, UNCERTAINTY
Jarrell showed jurors charts displaying press articles and analyst reports about the stocks Rajaratnam is accused of trading based on inside information.
On cross-examination by Assistant US Attorney Jonathan Streeter, Jarrell testified that mergers and acquisitions are almost always preceded by analysts and journalists speculating on whether the deal will go through.
Streeter asked Jarrell if a trader with access to accurate information from a corporate insider has an advantage.
“If you have certainty, in a world of uncertainty, that’s an advantage,” Jarrell said.
Jarrell’s testimony will continue April 18.
The discussion about Cohn came on April 12 as prosecutors objected to Schutte’s testimony about a meeting he and Rajaratnam had with Cohn. At that July 31, 2008, meeting, the Galleon and Goldman Sachs executives discussed the “potential” that the New York-based investment bank would “combine with an entity that had a large deposit base,” including a commercial bank or insurance company, Schutte testified.
GOLDMAN TIP
The defence offered Schutte’s testimony to respond to the government’s claim that Rajat Gupta, then a Goldman Sachs board member, tipped Rajaratnam two days before that meeting that the bank was considering buying American International Group Inc. or Wachovia Corp. Through Schutte’s testimony, the defense may have been trying to show that the alleged tip from Gupta didn’t involve confidential information.
Brodsky objected, according to the transcript of the sidebar conference with the judge, saying defense lawyers wanted to elicit “a hearsay statement that Cohn made at the meeting” about Goldman Sachs possibly making “a certain plan.” Brodsky then said the government would summon Cohn on rebuttal if there was such testimony, according to the transcript.
CROSS-EXAMINATION
In the end, Schutte didn’t testify about Cohn’s comments at the July 2008 meeting. Under cross-examination by Brodsky, Schutte said he didn’t ask Cohn at the meeting whether Goldman Sachs was planning to buy a bank imminently and that Cohn didn’t address the issue.
Goldman Sachs Chief Executive Officer Lloyd Blankfein, testifying at the trial on March 23, said Gupta violated the firm’s confidentiality policies by allegedly telling Rajaratnam about its earnings and strategic plans. Rajaratnam is accused of earning $4.6 million by trading on tips about the New York-based investment bank.
Gupta denies wrongdoing and hasn’t been criminally charged. The US Securities and Exchange Commission has brought an administrative action against him.