In a packed courtroom in downtown Manhattan today, the most high-profile and awaited witness in the Raj Rajaratnam insider trading trial, took the stand: Mr. Lloyd C. Blankfein.
After the late-night news yesterday that Blankfein could be called as early as this week, latecomers to room 17B were sent to an overflow room, reminiscent of the first few days of the trial.
Reed Brodsky, of the government, asked the judge’s permission to interrupt the testimony of Rajiv Goel for two witnesses who could not be in New York next week. It’s an unusual move, but the judge and the defence both accepted it.
So, after an hour or so of Goel testimony, it was time.
“The government calls its next witness, Lloyd C. Blankfein,” a voice boomed over the courtroom — and we turned, and there he was, standing meekly in front of the big wooden doors.
Blankfein was wearing a blue tie, a white shirt and a dark suit. He became more relaxed as the questioning wore on, and even bantered with Raj’s defence attorney, John Dowd throughout the cross. (In fact, after a break in giving testimony, Blankfein walked over to the defence team, and shook Dowd’s hand, then Raj’s).
During his testimony, we gleaned some insight into how Blankfein runs his ship: he gets Profit and Loss statements at the end of every business day, via email and voicemail. He admits he rarely reads the email, and garners the necessary information from the latter.
He also talks regularly with his board members in a one-on-one context, often “offline” he said. This gives the director opportunities to talk with Blankfein and raise concerns outside of the hearing of other board members. He had such conversations with Rajat Gupta.
And Gupta is the reason, of course, the Goldman Sachs chief was called to testify.
Gupta, a former board member of the bank, is accused of tipping Raj Rajaratnam about confidential information about Goldman’s earnings, strategy and the Warren Buffett investment. He is suing the SEC over the allegations.
Besides those subjects, a primary focus of Lloyd’s testimony was the July 2008 recording of Gupta and Raj discussing the possibility of Goldman’s acquisition of a commercial bank — Wachovia — or an insurance company — AIG.
Blankfein Bails Out The Government
Federal prosecutors, even before today, have labored over the Gupta-Raj AIG-Wachovia call. It is, for the prosecutors, another occasion in which they say Raj Rajaratnam blatantly traded on material, non-public information.
Today, it was the defence’s turn to labour over that telephone call, and the 2008 board meeting from which it allegedly stemmed.
John Dowd showed the court a copy of board meeting minutes from June 2008. The meeting had taken place in St. Petersburg, in Russia.
“Can you find the reference to possibility of buying a commercial bank or insurance company?” Dowd asked Blankfein.
Lloyd looked at the pile of paper he had been handed. “It’s a 10-page, single spaced…” he said.
“Take your time,” Dowd said.
We waited. Blankfein turned the pages. It felt like this it was about to be a watershed moment for the defence, with the validity of the government’s argument that Gupta leaked information based on that particular board meeting, about to be called into question by a particularly memorable witness. After several minutes passed, Blankfein made a sound into his microphone.
Dowd asked if the Goldman CEO found a reference. We sat on the edge of our uncomfortable, wooden courtroom seats. Based on what we had been shown of the minutes previously, we were doubtful a reference could be found.
And then, in an ironic turn of events, it was Lloyd Blankfein’s turn to save the government: “On Page 8…”
Dowd almost seemed taken aback. Where, he asked?
“O’Neill asked to lead a strategy review…” Blankfein said.
The words Wachovia or AIG, or even the phrases “insurance company” or “commercial bank,” did not appear on that document. We knew that; so did Dowd. But Blankfein, in pointing out that one, seemingly vague sentence, saved government prosecutors from serious injury by the defence.
When it came time for the government to redirect, federal prosecutor Andrew Michaelson asked Blankfein about the so-called strategy review. The Goldman chief explained that in strategic review, the bank will address potential paths for the firm (for example, its game-plan in certain growth markets; increases in asset management) and other strategy-based topics, and “certainly any potential merger and acquisitions… Whether it would be good strategy to merge or buy into a commercial bank.”
What do the “minutes” of a board meeting look like, Michaelson asked?
“A summary of topics,” Blankfein said.
“Do they contain everything that was talked about,” Michaelson asked.
“No,” Blankfein said.
His testimony also reinforced one of the government’s key themes: trading based on rumour and ‘inklings’ are not the same as trading on concrete information from inside sources.
“Speculation is people trying to guess,” Blankfein told jurors at one point. In a board meeting, however, those board members “know what the company is going to do.”
This has been a refrain of the government since the trial began.
Blankfein Talks Board Meetings
Blankfein confirmed that information about Goldman, of which Rajat Gupta was made aware during board meetings, was confidential. He also confirmed that Gupta was prohibited from relaying that information to a third party.
Prosecutors played the recording of Gupta and Raj discussing the potential acquisitions, and asked Blankfein whether Gupta had violated the bank’s confidentiality policy in revealing information spoken about at the board meeting.
“Um. Yes,” Blankfein said.
The defence argues that their client was able to trade on Goldman stock based on news that was circulating in the media, regulatory events such as TARP and public regulatory filings.
During the cross-examination, Terence Lyman honed in on whether board members could talk about information that was already public, outside of board meetings, if it had been discussed in a board meeting.
Though the topics about which directors talk during any given board meeting might already be public, Blankfein said, board member reactions to those public events, are not. As such, they are confidential, and should not be relayed to non-board members.
“The fact that things are discussed in a board meeting is confidential,” Blankfein said. “The reaction of board members is confidential. Even to a public topic, because it emanates from the board.”
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