BUSINESS
03/23/2011 01:13 pm ET Updated May 25, 2011

Goldman Sachs CEO Lloyd Blankfein: Rajaratnam Obtained Confidential Information

NEW YORK (Reuters) - Goldman Sachs Group Inc Chief Executive Lloyd Blankfein made his much-anticipated appearance at Raj Rajaratnam's trial, telling jurors a former director at Wall Street's most powerful bank leaked inside details to the accused hedge fund manager.

Blankfein was called to testify by prosecutors in Manhattan federal court. His appearance intensifies the focus on what is already the largest U.S. insider trading case in decades.

Dressed in a dark suit, white shirt and blue tie, the Goldman chief walked swiftly to the witness stand in the tense, packed courtroom of U.S. District Judge Richard Holwell.

He hesitated slightly when asked for his name, saying "Lloyd, uh, Blankfein," before spelling it for the court reporter.

He told jurors that former director Rajat Gupta violated Goldman confidentiality policies by revealing to Rajaratnam the board's June 2008 discussion of a possible merger with Wachovia Corp or an insurance company.

Asked whether American International Group Inc was the insurer, he said, "I don't have a specific recollection, but it probably would have been." Prosecutors played a July 2008 wiretapped phone call in which Gupta and Rajaratnam discussed Goldman.

Prosecutors have accused the Sri Lankan-born Rajaratnam, a one-time billionaire, of illegally making $45 million from 2003 to 2009 based on tips from insiders, some of whom were highly placed executives in corporate America.

Rajaratnam, 53, has said his trades were based on his own research at his Galleon Group hedge fund and publicly available information. He has vowed to clear his name at trial.

Gupta was accused by the U.S. Securities and Exchange Commission of tipping Rajaratnam about Goldman's 2008 financial results, as well as a $5 billion investment in September 2008 by Warren Buffett's Berkshire Hathaway Inc at the height of the financial crisis. The SEC said Rajaratnam reaped $17.5 million from the illicit tips.

Blankfein testified that it is important for Goldman directors not to disclose private discussions about the publicly-traded bank's business.

"We don't want information about our company to get out until it's appropriate," he said.
He also said premature disclosure inhibits the "free exchange" of ideas among directors, who might otherwise fear that what they say privately could become public.

Gupta, a former worldwide managing director at the McKinsey & Co consulting firm, has denied the SEC's accusations and sued the agency last week.

Goldman has not been accused of wrongdoing. Blankfein, 56, has been Goldman's chief executive since June 2006.

During a break, Blankfein grinned and leaned on the jury box. He made a joke to the court staff and looked relaxed. Rajaratnam, meanwhile, stared straight ahead, expressionless.

LIMITING BLANKFEIN TESTIMONY

Prosecutors earlier asked Holwell to block Rajaratnam's lawyers from cross-examining Blankfein on whether Goldman bears responsibility for the 2008 financial crisis, or is the subject of any Department of Justice or SEC probes.

They said such information is irrelevant to the trial, and could create unfair prejudice against Blankfein's testimony.

In court on Wednesday morning, Rajaratnam lawyer John Dowd said "I'm not going to inquire" about pending investigations. He also said he may recall Blankfein to the stand later.

Rajaratnam's trial began on March 8, and is expected to last two months.

Blankfein took the witness stand after Rajiv Goel, a former Intel Corp managing director and longtime friend of Rajaratnam who is cooperating with the government. Goel began testifying on Tuesday, and is expected to resume testifying later.

The case is U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 09-01184.

(Additional reporting by Basil Katz and Lauren Tara LaCapra; editing by Dave Zimmerman)

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