The SEC charged former Goldman Sachs board member Rajat Gupta with insider trading on March 1, so a trial is months away, but thanks to trial of Raj Rajaratnam, we have a preview of what a lawyer might say in Gupta’s defence.
The government has a recording of a call that took place between Raj and then-Goldman board member Rajat Gupta. Raj tells Gupta he heard that Goldman might acquire AIG and Gupta tells Raj what the Goldman board said in its meeting about the deal (both Wachovia and AIG were on the table, but a deal is unlikely).
As he was defending Raj, Raj’s lawyer ended up defending Gupta too.
Raj defence lawyer John Dowd says the prosecution has it wrong. Inside information was not revealed on this call. Rather, he says, the call was about Raj getting ready for a meeting with a top executive at Goldman, Gary Cohn. (Raj had a meeting scheduled with Cohn for later that week.)
Gupta was just doing his job, helping one of Goldman’s tier one clients, a tier one client who owned Goldman stock and was concerned about the future of the business. Raj was just doing his job preparing for his meeting so that he could ask Cohn smart questions.
“The government gets all excited about this call,” says the defence, but they misunderstood it. Raj and Gupta just did their jobs.
But the prosecution says it’s evidence that Gupta gave Raj info about Goldman. It’s important to the case against Raj because it’s the only wire-tapped call between Gupta and Raj that the prosecution played. They need it to prove that Raj traded Goldman stock based on inside information that he got from Gupta.
The timing of Raj’s calls with Gupta matches up perfectly with his trades in Goldman stock, but the government doesn’t have the wiretaps (perhaps because the rest of the calls are more pertinent to the charges against Gupta).
However if Raj got inside information on that one Wachovia-related call, it’s more likely that he got inside info from Gupta on the other three calls, too.
It’s unlikely that Dowd’s point has merit. The prosecution called Lloyd Blankfein to the witness stand and he explained that what board members discuss during the meeting is confidential. He also expressly said, Gupta violated company policy by telling Raj about the Goldman-AIG-Wachovia deal in preparation for his upcoming meeting with Cohn.
The prosecution played the wiretap of the conversation and asked Blankfein, did Gupta violate company policy?