new York June 9, 2012, 1:29 IST
A lawyer for a former Goldman Sachs Group Inc board member on trial for insider trading quizzed the investment bank's chief executive, Lloyd Blankfein, on Friday about how well Goldman guards company secrets.
Defense lawyer Gary Naftalis, whose client Rajat Gupta is charged with securities fraud and conspiracy, asked Blankfein about Goldman's decision to cut its 32,500 workforce by 10% in October 2008 during the financial crisis. The Wall Street Journal reported the job cuts on October 23, 2008, before the employees who were being laid off knew about them, the jury heard.
"Unfortunately, a good number of people participated in the process and they did know," said Blankfein, a prosecution witness, in his third day of testimony in Manhattan federal court.
Gupta, 63, denies charges that he illegally divulged financial information to his onetime friend and business associate, hedge fund founder Raj Rajaratnam, between March 2007 and January 2009 while serving on the boards of Goldman and Procter & Gamble Co
The October 2008 job cuts are not part of the indictment against Gupta. But part of the defense strategy is to argue that Rajaratnam, founder of the Galleon Group hedge fund, had many other sources of information to make stock trades other than Gupta.
Gupta is a retired global head of the McKinsey & Co consulting firm. His lawyers say he had nothing to gain financially by passing tips to Rajaratnam and that the government has a weak circumstantial and speculative case.
It is rare for a chief executive of a major corporation to testify in a criminal trial, but Blankfein has been called by the prosecution twice in the past 15 months. He also testified last year at the trial of Rajaratnam, who was convicted and is now serving an 11-year prison term.
Blankfein calmly dealt with hours of questioning by Gupta's defense attorney.
Under questioning by prosecutors, Blankfein has said several times either that all discussions at board meetings were confidential, or that he did not authorize Gupta to share information about the bank that was discussed at board meetings.
Naftalis introduced two reports by financial analysts showing Goldman managers had indicated the firm was considering the purchase of a retail bank in mid-2008 to boost liquidity.
The issue came up at a board meeting in June 2008 and was discussed by Gupta and Rajaratnam the following month in a telephone call secretly recorded by the FBI, according to trial evidence. The event is not in the government's indictment against Gupta.
The trial began on May 21 and was scheduled to end on Friday, but it will instead continue into a fourth week. The government rested its case late Friday. The defense was set to begin presenting its side of the case.
The proceedings have bee n p rolonged by numerous objections and conferences with the judge out of the hearing of the jury.
When Naftalis and Assistant US Attorney Reed Brodsky became embroiled in a verbal skirmish Friday morning, US District Judge Jed Rakoff told them: "All right gentlemen, it is only 10 after 10."
Blankfein's testimony began on Monday and resumed on Thursday due to scheduling issues. In total, he spent about 10 hours in the courtroom. Neither Goldman nor Blankfein is accused of any wrongdoing in the case.