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Rajat Gupta trial Day 11: Matching phone and trade records

On Day 11 of the insider trading trial, an agent from FBI described the connection between the trading records of the Galleon Hedge Fund LLP with the timing of phone calls between Rajat Gupta and Raj Rajaratnam.

Betwa Sharma   New York     Last Updated: June 8, 2012  | 11:58 IST

On Day 11, an agent from the US Federal Bureau of Investigation described the connection between the trading records of the Galleon Hedge Fund LLP with the timing of phone calls between Rajat Gupta, former global head of McKinsey & Co, and billionaire hedge fund manager Raj Rajaratnam.

Gupta has been accused of passing confidential information to Rajaratnam about Goldman Sachs Group Inc and Procter & Gamble Co while serving as a director on the boards of the two companies. Rajaratnam, co-founder of Galleon, was convicted of insider trading last year and is serving an 11-year prison term.

Highlights of trial:Day 1 | Day 2 | Day 3 | Day 4 | Day 5 | Day 6 | Day 7 | Day 8 | Day 9 | Day 10

Gupta, charged with securities fraud and conspiracy, has pleaded not guilty. The case against Rajaratnam, however, was easier to prove because the prosecution had wiretaps with his voice discussing insider tips. There are no recordings with Gupta passing on the tips.  

US government lawyers are trying to establish Gupta's guilt by showing that Rajaratnam's trades were linked to the phones calls between the defendant and the forme hedge fund manager.

Gupta allegedly called Rajaratnam minutes after a Goldman Sachs board meeting on September 23, 2008, to tell him that Warren Buffett's Berkshire Hathaway Inc was going to inject $5 billion in the investment bank. A few minutes before the market closed that day, Rajaratnam bought more than 200,000 Goldman Sachs shares.

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Goldman Sachs Chairman Lloyd Blankfein testified this week that the Buffett deal was confidential until the market closed at 4 pm that day, and Gupta was not authorised to disclose any information discussed in board meetings.

The government called as a witness FBI agent James Barnacle Jr who testified about the series of calls exchanged between Gupta and Rajaratnam on September 22 and September 23, 2008.

The phone records show that at 3.13 pm on September 23 Gupta called into a Goldman Sachs boardroom meeting and then he called Rajaratnam at 3.54 pm and 3.55 pm. Gupta was using a phone in the McKinsey office in New York.

The Goldman Sachs shares, which Galleon purchased at 3.56 pm and 3.57 pm, yielded a profit of more than $1.2 million and constituted 18 percent of the Goldman Sachs shares purchased that day. The prosecution showed that Gupta made three more calls to Rajaratnam between 6.15 pm and 6.16 pm after the Buffett deal went public at 6.09 pm that day.

Gupta also allegedly phoned Rajaratnam 23 seconds after an October 2008 board meeting to tell him that the investment bank would report a fourth quarterly loss. The jury has heard a call made the next day in which Rajaratnam tells another Galleon employee, "I heard yesterday from somebody who's on the board of Goldman Sachs, that they are gonna lose $2 per share. The street has them making $2.50."

Gupta's counsel made an objection before the prosecution could question Barnacle on the October 23 phone records. Barnacle is expected to complete his testimony on Thursday.

Defense points to perhaps another leaker

Gupta's lawyer on Wednesday pointed to David Loeb, a sales executive at Goldman Sachs, as a candidate for leaking secrets to Rajaratnam.

During the cross-examination of Joseph Yanagisawa, who oversees phone and email records at Goldman Sachs, David Frankel, part of Gupta's legal team, quizzed him on the calls exchanged in the 2007-2008 period between Loeb and Rajaratnam as well as Loeb and Adam Smith, a Galleon trader.

Some of these calls were made on the same days that Gupta was allegedly passing insider information.

Assistant US Attorney Reed Brodsky has previously said in court that Loeb passed on secrets about Apple Inc, Intel Corp and Hewlett-Packard Co. Loeb hasn't been charged with wrongdoing. Brodsky pointed out that the companies being dealt with in the Gupta trial are different.

Gupta's legal team, however, has made the argument that other people inside the company leaked information to Rajaratnam. Frankel pulled out records that showed Loeb had made two calls to Smith on September 23 at 3.07 pm and he also made calls to Smith and Rajaratnam on October 23.

During his direct examination, Assistant US Attorney Richard Tarlowe had asked Yanagisawa about various calls exchanged between Gupta and Blankfein. The Goldmas Sachs chairman has has testified that he phoned Goldman Sachs directors to brief them.

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GUPTA'S MOTIVE

Earlier in the day, a Galleon portfolio manager Isvari Mahadeva testified that Gupta invested $5 million into Voyager Capital Partners, joint fund with Rajaratnam in 2005. A year later later, Gupta invested another $5 million into the joint fund, which would yield an additional 10 per cent profit.

The prosecution had called Mahadeva as a witness to establish that Gupta would profit by investing with Rajaratnam, which attributes a motive to the defendant to leak tips.

Gupta's lawyers have argued that their client did not profit from Rajaratnam's winnings on insider tips, which points to a lack of motive to leak secrets. On the contrary, they point out that Gupta lost $10 million due to Rajaratnam's mismanagement of the Voyager fund.

During his cross-examination by Gupta's counsel Gary Naftalis, Anil Kumar, a former McKinsey employee, testified that Gupta was thinking of suing Rajaratnam over the loss. Kumar, who has pleaded guilty to insider trading, appeared as a government witness to testify about the extent of relationship between Gupta and Rajaratnam.

To establish motive, the prosecution has previously called as a witness Ayad Alhadi, a former Galleon marketing executive, who said that he accompanied Gupta to the United Arab Emirates in 2008 to generate investments for the hedge fund. Alhadi testified that Rajaratnam told him that Gupta would be the chairman of Galleon International fund.

Besides the FBI agent's testimony, Blankfein is also expected to return to the stand on Thursday.

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