Gupta Trial: Goldman Sachs Plays Big Role As Insider Trading Trial Begins

Goldman Sachs haunts the insider trading case against one of the Wall Street bank's former directors, Rajat K. Gupta. As Gupta's federal fraud trial opened to a packed New York courtroom Monday, his defense attorneys invoked Goldman almost immediately, arguing that others at that firm were responsible for feeding former hedge fund manager Raj Rajaratnam secrets that he illegally used for trading.

"Even if there was a crime, Rajat Gupta had nothing to do with it. You've got the wrong guy," Gupta's lead lawyer, Gary Naftalis, told jurors. Rajaratnam, said Naftalis, "was a major customer of Goldman Sachs" and "had other sources" at the firm.

Rajaratnam was convicted of 14 counts of conspiracy and securities fraud a year ago and is serving an 11-year prison sentence -- the longest for insider trading in the U.S. His hedge fund, Galleon Group, was shuttered following his 2009 arrest. Gupta, 63, accused of being a Rajaratnam tipster, was charged with conspiracy to commit securities fraud in October. If convicted, he faces up to 25 years in prison. Goldman has not been charged with any wrongdoing. A spokesman for the firm declined to comment.

Prosecutors made ample references to Goldman in their statements to jurors as well, alleging that Gupta phoned Rajaratnam with tips shortly after Goldman Sachs board meetings. In September 2008, as the financial crisis was unspooling, Gupta learned at a Goldman board meeting that billionaire Warren Buffet planned to pump $5 million into Goldman Sachs, prosecutors said. Gupta phoned Rajaratnam within minutes and Galleon quickly bought shares in the investment bank, which shot up in value the next day.

"This was a tip from the ultimate Goldman insider, " federal prosecutor Reed Brodsky told the 12 jurors. Gupta, he said, was a "central participant," in Rajaratnam's insider trading.

The Goldman connection is one that both the prosecution and defense seem eager to exploit, raising questions about Rajaratnam's closeness to Goldman employees and about how many potential sources -- if any -- he had there. A number of Goldman executives are expected to testify, including CEO Lloyd Blankfein and Chief Financial Officer David Viniar. Others who may be called to the stand include Buffett and executives from American Express and Procter & Gamble.

Federal authorities continue probing aspects of the Galleon case that implicate Goldman employees. The Securities and Exchange Commission was reportedly looking into the possibility that Goldman investment banker Matthew Korenberg was passing non-public information to Galleon about pending mergers. Other Goldman employees under federal scrutiny for links to Galleon are said to include salesman David Loeb and technology stock analyst Henry King.

Gupta's defense team maintained that none of the prosecution evidence -- some obtained from federal wiretaps on Rajaratnam's phone -- proves wrongdoing. "They're presenting a case based on speculation," Naftalis said. The lawyer also pointed out that Gupta had enjoyed a respected career. "It defies common sense that in the twilight of an illustrious life ... suddenly he would become a criminal," the lawyer said.

Gupta stared stoically ahead throughout the day. His family joined him for lawyers' opening statements. As court adjourned for the day, Gupta gave Naftalis a hug.