In Rajat Gupta's Insider-Trading Trial, Defense Rests

The defense rested its case on Tuesday, the final day of testimony in the insider-trading trial of former Goldman Sachs board member Rajat K. Gupta.

With the prosecution having rested its case on Friday, Judge Jed Rakoff gave jurors the rest of the day off, in part so that prosecutors and the Gupta defense team could prepare their closing arguments, scheduled to begin on Wednesday morning. Gupta’s trial is in its fourth week.

The court heard testimony from three witnesses on Tuesday, including Gupta’s daughter, Geetanjali, who earlier said her father is “straightforward, direct, truthful and inspires trust.”

Rajat Gupta is on trial in federal court in downtown Manhattan on charges that, on a number of occasions, he passed along key inside information gleaned from Goldman Sachs and Procter & Gamble board meetings to Galleon Management founder Raj Rajaratnam, who then illegally used that information in trades. If convicted, Gupta faces up to 25 years in prison. In October Rajaratnam was convicted of insider trading charges and sentenced to 11 years in federal prison.

Also on Tuesday, Todd Summers, chair of the Strategy, Investment, and Impact Committee at the Global Fund to Fight AIDS, Tuberculosis and Malaria, testified that “Rajat is an honest and honorable man.” Asked in cross-examination by prosecutor Reed Brodsky whether he had any knowledge of Gupta’s interaction with Galleon, Summers responded, “I don’t even know what that is.” Summers said he had met Gupta through his work on that fund.

Another who testified Tuesday was James Roth, who had worked in the executive offices of Goldman Sachs, primarily preparing briefing documents for executives, including CEO Lloyd Blankfein and the firm's president, Gary Cohen. The defense asked Roth to discuss a briefing memo that he had prepared for Cohen in July 2008, in preparation for Cohen’s meeting with Galleon founder Raj Rajaratnam.

One section of the memo, titled “[Goldman Sachs] Relationship History,” indicated that from January to July 2008, Goldman Sachs had received $21.6 million in stock revenues derived from Galleon and that Goldman had received $32.3 million in 2007 and $25.7 million in 2006. Throughout the trial, Gupta’s defense team has sought to highlight Goldman Sachs’ relationship with Galleon as it seeks to build a case that others inside Goldman -- and not Gupta -- could have fed information to Rajaratnam. Gupta's defense also contends that any phone conversations between Gupta and Rajaratnam were part of a routine business relationship.

But prosecutors allege that on a number of key occasions, Gupta illegally passed along to Rajaratnam information gleaned from sensitive firm discussions. Prosecutors allege that after a Goldman board of directors conference call on Sept. 23, 2008, when the board debated whether to accept a $5 billion investment from Warren Buffett, Gupta phoned Rajaratnam to convey details of the deal. Rajaratnam immediately used that information to buy shares in Goldman, according to prosecutors.

Prosecutors also allege that Gupta tipped off Rajaratnam about a June 2008 board meeting in St. Petersburg, Russia, when the board discussed the possibility of buying a distressed commercial bank or the insurance giant AIG -- information that Gupta was heard telling Rajaratnam on a wiretapped phone conversation later that summer. That tape was presented to jurors earlier in the trial.

At another point in the trial, the court had heard testimony from Goldman Sachs CEO Lloyd Blankfein, who said that Gupta was present at certain meetings, the meetings were indeed confidential and Blankfein had not given Gupta permission to discuss such information with anyone outside the board, including Rajaratnam.

But Gupta’s defense team argues that there is little evidence linking Gupta to an actual crime.

Some legal experts say the lack of direct evidence showing that Gupta tipped off Rajaratnam about nonpublic information could be a bad sign for the prosecution. “The government could lose,” said Thomas Gorman, a lawyer at the firm Dorsey & Whitney, who focuses on defending clients against Securities and Exchange Commission and Justice Department securities investigations and actions. "This is a very difficult case," he said. "It’s largely circumstantial. But they have more than enough evidence to have brought the case.”

The defense's key argument -- that others at Goldman supplied tips to Rajaratnam -- met with a setback onTuesday, when Judge Rakoff decided to exclude a wiretapped recording that Gupta’s lawyers wanted to submit into evidence.

The recording, according to the defense, caught Goldman Sachs executive David Loeb in August 2008 passing along key information to Rajaratnam about Intel and Apple. Two weeks ago, a prosecutor acknowledged that Loeb is under federal investigation for disclosing insider information.

Gupta’s defense team has argued that Gupta had little incentive to convey information to Rajaratnam because the two were not on good terms during key board meetings in 2008 and Gupta had no personal business relationship with Galleon at that time.

To that end, the defense on Tuesday played a recorded Oct. 2, 2008, conversation between Rajaratnam and Sanjay Santhanam, Galleon’s head of risk management, as they appear to discuss lying to Gupta about his investment in the Galleon fund Voyager. “It’s all part of the game,” Rajaratnam can allegedly be heard saying, “I hope Rajat is a big boy.”