NEW YORK – The Indian-born US businessman accused in one of Wall Street’s biggest insider trading probes passed a tip on a deal so confidential that it was “top secret,” a former colleague said Wednesday.
Rajat Gupta is on trial in Manhattan federal court for allegedly giving his friend, billionaire hedge fund investor Raj Rajaratnam, non-public, market-moving information.
One of those tips, prosecutors say, was that investor Warren Buffett’s Berkshire Hathaway group was going to inject $5 billion into Goldman Sachs, where Gupta was a board member, in the midst of the 2008 US financial meltdown.
The deal with Buffett, which came when Goldman shares were under threat amid the panic on Wall Street, was “as top secret as you could get,” said Byron Trott, another former Goldman board member,
Gupta allegedly called Rajaratnam with the information before the stock market closed on September 23, 2008 so that his friend could buy Goldman stock.
Records show a call was placed by Gupta to Rajaratnam immediately after the Goldman board meeting, although there is no recording of what was said.
As could be expected, Buffett’s huge vote of confidence moved up Goldman stock prices “quite significantly,” Trott told the court. There was “a lot of good press.”
Gupta has denied the allegations that he tipped off Rajaratnam.
In cross-examination, a lawyer for Gupta appeared to suggest that plans at that time for emergency US government assistance to banks, under the program known as TARP, could have prompted Rajaratnam to buy Goldman stock, rather than a tip-off about Buffet.
“Goldman Sachs got $10 billion (from TARP), is that correct?” Gary Naftalis asked Trott. “Twice what Mr Buffet’s investment was, right?”
Trott replied that the TARP deal was only in the planning stages on that day and “I don’t think anybody did, honestly, know about TARP.”
Rajaratnam, founder of the Galleon Group, was convicted last year of insider trading and sentenced to 11 years in prison.
According to prosecutors, Gupta, 63, was a key cog in Rajaratnam’s scheme. With a CV that included membership of the boards of Goldman Sachs and Procter & Gamble, and the top job at McKinsey & Co, Gupta was “the ultimate insider,” prosecutor Reed Brodksy said.
Gupta had a sterling reputation in top US business circles, which he reached after working his way up from the bottom.
According to Trott, board members at Goldman were all mindful of ethics. “There were strict rules,” he said. The “worst act you could commit was to breach confidentiality.”
Opening the trial on Monday, Brodsky said Gupta “threw away his duties, threw away his responsibilities and broke the law.”
Although Gupta was “highly accomplished,” he had a dark side “hidden from public view.”
Naftalis however argued that the prosecution was “cherry picking” evidence to cover up the lack of a solid case against a highly principled man.