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Ex-Goldman Director Faces Insider Trading Trial


A giant of American business goes on trial in New York today. Rajat Gupta is accused of insider trading. He's the one-time chief executive of the consulting firm McKinsey and Company and a former board member of Goldman Sachs.

Prosecutors allege he passed on information about Goldman to billionaire Raj Rajaratnam, who's already in prison for insider trading.

NPR's Jim Zarroli is covering this story from New York. Hi, Jim.


INSKEEP: Suppose we should mention, Rajat Gupta wasn't exactly a household name, but he was very well positioned and very well-known in business circles.

ZARROLI: Yeah. Yeah. The federal government has been pursuing a big insider trading case for a while now. It's charged 66 people, 59 of them have pleaded guilty. Gupta decided to fight the charges. And really, if he's convicted it will be a big win for the government. He's really got a blue chip pedigree in the business world. He's very well respected, very successful. He's on the board of Procter & Gamble as well as Goldman Sachs. He's also done a lot of philanthropic work.

Last week the defense made clear they wanted to talk about the philanthropic work with the jury, and the judge in the case, Judge Jed Rakoff said more or less, it's not really relevant to the case at hand. He said something like, you know, look, if Mother Teresa or here charged with bank robbery the jury would still have to focus on whether she committed the bank robbery, you know, not what kind of person she was.

INSKEEP: OK. So let's focus on that. What kind of information did Gupta allegedly passed on to Raj Rajaratnam?

ZARROLI: Well, this happened in 2008 in the middle and right before the financial crisis. And the prosecutors say that Raj Rajaratnam, who is the head of the Galleon Group hedge fund company, but sometimes called Gupta and pump him for information about what Goldman was doing. And these conversations were recorded because the FBI was wiretapping Raj Rajaratnam. So, for instance, at one point Raj Rajaratnam called him and he said to Gupta, you know, I hear Goldman is thinking of buying a big commercial bank. And here's how the conversation went.


RAJ RAJARATNAM: Have you heard anything along that line?

RAJAT GUPTA: Yeah, this was a big discussion at the board meeting...


GUPTA: ...on whether we...

RAJARATNAM: Buy a commercial bank?

GUPTA: Buy a commercial bank. And, you know, it was a divided discussion in the board.


GUPTA: I think more people saying why? Because, in essence, it's a lower return business.

INSKEEP: So did Raj Rajaratnam take that information then and trade on it knowing that it would move the market eventually one way or the other?

ZARROLI: Yeah. I mean he used it to invest. Raj Rajaratnam had a big network of sources, he very often tapped them for illegal information. This is what he went to prison for last year; he's serving an 11 year sentence.

Now there were some other conversations in the year. At one point Raj Rajaratnam called him and Gupta told him that Warren Buffett was thinking of investing in the company also. Another time that Goldman was about to have a big quarterly loss for the first time. So the question in this trial is going to be: what was Gupta doing in these calls when he passed on information to Raj Rajaratnam, what was he getting out of it? The two men had been pretty friendly at one time. They sort of appeared to have investment relationship. But Gupta's lawyer says Gupta didn't trade in any securities. He didn't share in any of the profits as a result of the trade. So a lot of trial will be about trying to find out what Gupta's motives were when he passed on these tips.

INSKEEP: Wait a minute. Does that mean that Gupta could argue that sure, he was a little boost with information, but he didn't mean anything by it, he was just being foolish?

ZARROLI: Yeah. I think that's what the defense is going to try to say. The problem is that there are these wiretaps. Now in the Raj Rajaratnam case, the government recorded hours of conversations, and it was a very compelling case against him. The case against Gupta is more circumstantial and the defense also says that the information wasn't really privileged, it was already out there on Wall Street and, you know, they're going to be bringing in people from Goldman to talk about that. One of the people on the witness list, for instance, is chief executive Lloyd Blankfein, another is Warren Buffett, and the trial itself is expected to last three to four weeks.

INSKEEP: NPR's Jim Zarroli in New York. Jim, thanks very much.

ZARROLI: you're welcome. Transcript provided by NPR, Copyright NPR.

steve Ink
Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.