Rajat Gupta Trial: Lloyd Blankfein, Goldman Sachs CEO, Testifies Gupta Had 'Market Moving' Secrets

Goldman Sachs CEO Lloyd Blankfein told jurors at the insider trading trial of former Goldman director Rajat K. Gupta on Thursday that Gupta attended meetings discussing "potentially market moving" information about the Wall Street bank that he wasn't authorized to share.

Gupta, accused of leaking that insider information to Galleon Group hedge fund founder Raj Rajaratnam, who is now serving an 11-year prison term for insider trading, was present at key Goldman Sachs board meetings, including a June 2008 meeting in St. Petersburg, Russia, in which the board "agreed that AIG would be a suitable target" to buy, Blankfein said during his first day of testimony on Monday. Prosecutors said Gupta was later caught relaying the tip to Rajaratnam on a wiretapped phone call, played for jurors earlier in the trial. Blankfein said Gupta also was on a Sept. 23, 2008, conference call in which board members debated whether to accept $5 billion from investor Warren Buffett at the onset of the financial crisis.

"All parts of" the board meetings were private, Blankfein testified. “The fact that anything was discussed in the board meetings is itself a confidential fact,” he said. The CEO is scheduled for further testimony on Friday.

Blankfein’s testimony “lays the foundation for the government to argue that the release of this information was inappropriate,” said Michael S. Weinstein, a former federal prosecutor who now chairs the white collar defense practice at the law firm Cole Schotz, and who is not involved in the Gupta trial. “They need to establish that he was there, that he heard the information and that it was private as a prerequisite to the next step, which is proving he disclosed it. Blankfein is able to say, with absolute authority that this information is private and confidential because he is the top of the chain at the company.”

Gupta, former head of consulting firm McKinsey & Co., is charged with conspiracy and five counts of securities fraud. His trial began in U.S. federal court in Manhattan last month. If convicted, he faces up to 25 years in prison.

Under cross-examination by Gupta's lead defense attorney, Gary Naftalis, Blankfein said that Galleon was a "an important client of Goldman Sachs" in 2008 and that Goldman wanted to extract further business from the firm because "we went to do that with all of our clients."

Earlier Thursday, FBI Agent James Barnacle told jurors that on multiple occasions in 2007 and 2008, Galleon made trades on Goldman Sachs stock shortly after phone calls were made between phone numbers associated with Gupta or the McKinsey firm, and numbers associated with Galleon or Rajaratnam. The agent's testimony supports the prosecution allegation that Gupta leaked information from these meetings to Rajaratnam, who then traded Goldman Sachs shares based on the insider secrets.

Gupta's defense lawyers have said that there is little evidence linking Gupta directly to those calls, or that he passed non-public information to Rajaratnam.

Outside the courtroom on Thursday, Atul Kanagat, a former principal at McKinsey who said he’d known Gupta for 25 years, complained that the prosecution “cherry picks these phone calls. They don’t have a single piece of direct evidence.” Kanagat, who has been watching the trial, now runs the website, a support site for Gupta.

Gupta’s lawyers also have said he didn't stand to make money from Rajaratnam’s fund, so he had little motive to pass along insider information.

Isvari Mahadeva, a former Galleon Group portfolio manager, testified Wednesday that Gupta did indeed stand to profit from investments he'd made in Rajaratnam's hedge fund -- through $10 million in a fund Galleon managed called Voyager Capital.