One question at the heart of the Rajat K. Gupta insider trading trial is whether information the former Goldman Sachs board member allegedly disclosed to hedge fund manager Raj Rajaratnam was secret. As Goldman CEO Lloyd Blankfein spent a third day on the witness stand in federal court in Manhattan on Friday, Gupta's lawyers sought to raise doubts about whether the allegedly leaked information was already public.
Gupta, also former chief of consulting firm McKinsey & Co, is accused of telling the now-jailed Rajaratnam about a June 2008 Goldman board meeting in in St. Petersberg, Russia. Blankfein testified earlier that the board discussed purchasing either a bank or the insurance giant AIG -- major information to a Goldman Sachs investor -- and Blankfein said it was strictly confidential. On a wiretapped phone call played for jurors, Gupta could be heard telling Rajaratnam of Goldman's plans, according to the prosecution.
But on cross-examination of Blankfein, Gupta’s lawyers sought to raise doubt about just how secret this information was. Two analyst reports from July 2008 discussed Goldman’s interest in buying another financial institution. One, written by a Merrill Lynch banking analyst, was headlined, “Goldman Sachs Bank and Trust? Don’t Rule it Out.”
“Items that your senior management [discuss] are no longer confidential under Goldman’s confidentiality agreements?” asked Gupta's lead defense attorney, Gary P. Naftalis, after showing Blankfein the report.
“Yes,” Blankfein responded.
The prosecution rested its case against Gupta Friday after 13 days of testimony in an insider trading trial that has captivated much of Wall Street. Gupta stands accused of conspiracy and five counts of securities fraud. Blankfein, the biggest name the trial has brought to the courtroom, spent three days testifying -- without his beloved BlackBerry.
At times during his days in court, Blankfein was left sitting on the witness stand while the judge, prosecution and defense lawyers engaged in lengthy sidebar conversations to decide procedural matters. These moments were particularly awkward, since Blankfein -- with cell phones banned from the courtroom -- had no choice but to sit on the stand, silently facing the jury and audience. At times, Blankfein would sit for upwards of 15 minutes, looking around the room and grinning widely. On his way out of the courtroom Friday, the Wall Street titan said he was happy to be finished. "There's only so many times you can count the number of stars" on the courtroom flags, he said.
Gupta's attorneys told Judge Jed Rakoff on Friday that the defendant likely will testify in his own defense. If convicted, Gupta faces up to 25 years in prison.
Prosecutors allege that Gupta fed confidential information to Rajaratnam, founder of Galleon Management, who then used the leaks to profit from trading Goldman stock. Rajaratnam was convicted of insider trading in October and is serving an 11-year prison sentence. Blankfein testified at Rajaratnam’s trial as well.
Blankfein testified Thursday that Gupta attended meetings in which "potentially market moving" information was discussed -- including the discussion of a possible bank takeover in St. Petersberg. "All parts of" the board meetings were private, Blankfein said. “The fact that anything was discussed in the board meetings is itself a confidential fact.”
Assistant U.S. Attorney Reed Brodsky returned to that point in follow-up questioning on Friday, asking Blankfein whether he “ever authorized Gupta ... to disclose information discussed at the board meeting” in Russia.
“No. I never so authorized,” Blankfein said.
A legal expert told The Huffington Post earlier in the week that Blankfein’s testimony was designed to bolster the charge that Gupta had access to secret information and wasn't authorized to disclose it to Rajaratnam.
“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," said Michael S. Weinstein, a former federal prosecutor who chairs the white collar defense practice at the law firm Cole Schotz. "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.” Weinstein isn't involved in the Gupta case.