Ex-Goldman Sachs Group Inc. (GS) director Rajat Gupta is trying to bolster his defense to federal insider- trading charges by using prosecutors’ own words calling accused accomplice Raj Rajaratnam a liar.
Prosecutors are likely to argue at Gupta’s April trial that Rajaratnam told another person that Gupta gave him illegal tips, defense lawyers said in a January 3 court filing. In response, Gupta’s lawyers may argue that the former hedge fund manager, convicted of directing the biggest insider-trading scheme in a generation, can’t be believed and that even the government doubts him. They cite comments prosecutors made challenging an interview Rajaratnam gave to Newsweek magazine.
In the interview published in October, Rajaratnam, co- founder of the Galleon Group LLC hedge fund, said prosecutors pressured him to plead guilty to insider trading and become an informant against Gupta. Afterwards, a spokeswoman for US Attorney Preet Bharara in Manhattan called his remarks “inaccurate” and FBI spokesman Jim Margolin said comments Rajaratnam attributed to agents were never uttered.
Now, Gupta is using the government officials’ denials as a basis to ask a judge to order prosecutors to surrender documents casting doubt on Rajaratnam’s truthfulness.
“Any such statement, in which the government expressed its own doubts about Rajaratnam’s veracity — or simply that he is not to be trusted, even if stopping short of calling him a liar — would obviously be helpful to the defense,” Gupta’s lawyer, Gary Naftalis, wrote in the filing in Manhattan federal court.
Gupta, 63, is scheduled to appear in court today as part of a pre-trial conference. Prosecutors haven’t responded to Gupta’s document request, and it’s unclear if the issue will be discussed today. The trial is scheduled to start April 9.
P&G, McKinsey
Gupta, who also sat on the board of Procter & Gamble Co. (PG) and led McKinsey & Co., was indicted in October on accusations that he passed inside information to Rajaratnam.
He was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud. If convicted, he faces up to 20 years in prison on each of the securities fraud counts and as long as five years on the conspiracy charge. He denies wrongdoing.
Rajaratnam, 54, who was convicted by a jury last year, is serving an 11-year prison term.
Berkshire, Goldman Sachs
The Gupta indictment cites three instances in which he allegedly leaked tips to Rajaratnam. He’s accused of telling Rajaratnam about Berkshire Hathaway Inc’s $5 billion investment in Goldman Sachs in September 2008, about the bank’s unexpected fourth-quarter loss that year, and about P&G’s poor performance in late 2008.
The indictment cites close ties between the two men, saying Gupta invested $2.4 million in at least two Galleon offshore funds, put $10 million into a venture with Rajaratnam called Voyager Capital Partners, and committed $22.5 million to a fund they created to focus on emerging markets in Asia.
Gupta’s lawyers said they expect prosecutors to re-play at least some of the wiretapped recordings of Rajaratnam’s telephone conversations heard at his trial. In a call from Oct. 24, 2008, Rajaratnam told a colleague that he’d been tipped by a source on the Goldman Sachs board about unanticipated losses. In that call, Rajaratnam doesn’t name Gupta, who prosecutors say was the source.
Rajaratnam also doesn’t identify Gupta on two other wiretapped recordings that the government will likely play at the April trial, Naftalis wrote.
Ellen Davis, a spokeswoman for Bharara; Margolin, the Federal Bureau of Investigation spokesman; and Naftalis declined to comment on Gupta’s court filing.
‘Exaggerated’ Contacts
Gupta’s document request was part of a wide-ranging legal filing that asks U.S. District Judge Jed Rakoff to bar prosecutors from using wiretaps as evidence and to dismiss some counts. It also seeks an order for the government to surrender “any information” showing that Rajaratnam “boasted about or exaggerated his contacts” with “prominent persons or his sources of information.”
The court filing provides insight into Gupta’s defense.
Unlike Rajaratnam’s case, “there are no wiretap recordings of conversations in which Mr. Gupta passed material, non-public information,” Naftalis wrote. Nor is there evidence that Gupta traded on illegal tips or shared in illicit profits, he said.
Wiretapped Call
Naftalis said he’ll challenge the use of a wiretapped call from July 29, 2008, in which Gupta and Rajaratnam discussed whether Goldman Sachs might buy a commercial bank. At Rajaratnam’s trial, prosecutors cited the conversation as proof that Gupta leaked news about New York-based Goldman Sachs. Naftalis said there was already public speculation about Goldman’s possible purchase of a bank, and the information on the wiretap wasn’t secret.
Naftalis also said the “relationship between the two men deteriorated in 2008,” in part because Rajaratnam lost Gupta’s $10 million investment in the Voyager fund.
In the Newsweek interview, Rajaratnam was quoted saying: “They wanted me to plea-bargain. They want to get Rajat. I am not going to do what people did to me. Rajat has four daughters.”
According to Newsweek, Rajaratnam said FBI agent B.J. Kang, the lead investigator on the case, told him, “Take a good look at your son. You’re not going to see him for a long time,” and added, “Your wife doesn’t seem so upset. Because she’s going to spend all your money.”
Margolin said in an interview in October that statements attributed to Kang and other agents were never spoken.
The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court for the Southern District of New York (Manhattan).
