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Day 8 Rajat Gupta trial: Witness gives insight into secrecy of Goldman-Buffett deal

Stephen Pierce, head of Equity Capital Markets at Goldman Sachs, elaborated on the confidentially aspect of the bank's deal with Berkshire Hathaway, describing how he had to jump into a janitor's closet to take a phone call related to the deal.

Betwa Sharma | June 1, 2012 | Updated 17:41 IST

On Day 8, a senior Goldman Sachs Group Inc executive gave an inside look into the secrecy of the plans to raise $10 billion for the investment bank in September 2008 when financial institutions were reeling under the economic crisis in the US.

These plans included Warren Buffett's Berkshire Hathaway Inc injecting $5 billion into the investment bank, which is the deal Rajat Gupta, former global head of McKinsey & Co, has been accused of leaking to billionaire hedge fund manager Raj Rajaratnam.

Rajaratnam, co-founder of the Galleon Hedge Fund LLP, was convicted of insider trading last year and is serving an 11 year prison sentence. Gupta, who had served as a director at Goldman Sachs, allegedly called Rajaratnam immediately after a board meeting on September 23, 2008, to tell him about Buffett's investment.

The prosecution is trying to prove that Rajaratnam's purchase of more than 200,000 shares of Goldman Sachs, minutes before the market closed that day at 4 pm, was based on Gupta's alleged tip.

"It (the Buffett deal) was extremely confidential," said Stephen Pierce, head of Equity Capital Markets at Goldman Sachs, who appeared as a government witness on Thursday. When asked by Assistant US Attorney Reed Brodsky why secrecy was important, Pierce said a substantial investment by Buffett "would have a meaningful impact on Goldman Sachs stock".

Pierce's testimony also provided an insight into how the investment bank developed and orchestrated a plan to raise money within three days in a volatile market atmosphere, which saw the collapse of another investment bank Lehman Brothers Holding Inc.

Full Coverage: Rajat Gupta trial

To elaborate on the confidentially aspect of these dealings, Pierce described how he had to jump into a janitor's closet to take a phone call about the plan to raise money, while he was attending a baseball game at the Yankee Stadium on September 21.

Pierce designed a secondary public stock offering to raise $2.5 billion in common equity. The Buffett announcement, however, had a positive impact on the demand for the secondary offering as well. "We generated an excess of $20 billion," he told the jury.

The prosecution highlighted that Goldman Sachs made both these announcements public only after the market closed on September 23 at 4 pm. Pierce also testified that Goldman Sachs employees, who were bound to confidentiality, only began to contact a dozen investors after the market closed. The prosecution showed that an official press release came out around 5.45pm.

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On cross-examination, Gupta's counsel David Frankel tried to show that Pierce had sent an email to his wife and lawyer before the deal had been publicly announced. "Watch the tape. Hard work pays office," Pierce wrote. But Brodsky countered that the email sent only after the market closed that day.

Gupta's lawyers have also argued Rajaratnam had a wide variety of sources who could have leaked the information to him. On cross-examination, Pierce said that several Goldman Sachs employees were involved in shaping the deals.

Gupta's legal team has also argued that Rajaratnam and Gupta were not on friendly terms and they eventually had a falling out in 2008. Gupta's counsel has said that Rajaratnam's mismanagement of their joint investment fund, Voyager Capital Partners, caused Gupta a $10 million loss.

To counter this, the prosecution today 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.

Alhadi also said that Gupta got foreign investors interested in putting millions of dollars into Galleon. By telling the jury about Gupta's involvement in the hedge fund, the prosecution is trying to show that the defendant had a stake in Rajaratnam's profits made by insider trading - hence providing a motive.

Besides Goldman Sachs, Gupta has also been accused of passing confidential information about Procter & Gamble Co to Rajaratnam while serving as a director in the consumer products giant. Gupta, who is charged with securities fraud and conspiracy, claims he is innocent.

Ending a week's speculation, the prosecution confirmed that Goldman Sachs Chairman Lloyd Blankfein will be testifying as a government witness-possibly next week.

Anil Kumar, a former McKinsey senior executive, who was friends with both Gupta and Rajaratnam, is expected to testify on Friday. Kumar has pleaded guilty to insider trading charges and testified against Rajaratnam last year.

Witnesses on the list drawn by Gupta's lawyers include Geetanjali Gupta, the defendant's eldest daughter, Renee Gomes, his personal secretary, Richard Schutte, former head of research at Galleon, and Anil Sood, a World Bank consultant and lifelong friend.

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