Prosecutors use wiretaps in Gupta trial

Prosecutors used a secret recording of Galleon Group LLC co-founder Raj Rajaratnam and phone records from a McKinsey & Co conference room to link Rajat Gupta to what they say was an illegal tip about Goldman Sachs.

On the fourth day of the insider-trading trial of Gupta, who was a Goldman Sachs director and McKinsey executive in 2008, federal prosecutors played wiretapped calls of Rajaratnam from September 24, 2008, on which the hedge-fund manager talked to traders about his purchase of Goldman Sachs shares the day before.

“I got a call at 3:58, right?” Rajaratnam can be heard telling trader Ian Horowitz on the recording played on Thursday in federal court in Manhattan.

 

“Saying something good might happen to Goldman.”

These recordings were also played last year at Rajaratnam’s trial, where he was convicted of insider trading and sentenced to 11 years in prison.

Prosecutors also played a wiretapped call between Rajaratnam and David Lau, a Galleon trader. On the recording, Rajaratnam said, “I heard yesterday from someone who’s on the board of Goldman Sachs that they’re going to lose $2 a share, the market has them making $2.50.”

The government also sought to establish a close relationship between Gupta and Rajaratnam by showing jurors e- mails from Gupta to associates. In one, he calls Rajaratnam a “very close friend” and “one of the most outstanding hedge fund managers.”

After playing the recordings on Thursday, Carolann Shields, who works in McKinsey’s information technology department, told jurors about phone calls on September 23, 2008, from conference room 2704 in the consulting firm’s New York office, where Gupta was working.

From 3:13 p.m. to 3:53 p.m., Shields testified, the phone in the conference room dialed into a Goldman Sachs board call, where, according to prior witnesses, directors were briefed on a plan by Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) to invest $5 billion in Goldman Sachs. At 3:55 p.m., phone numbers associated with the conference room and with Gupta’s personal assistant placed calls to Rajaratnam’s line at Galleon.

“It could have been connected for 30 seconds, or up to 35 seconds,” Shields told jurors.

Prosecutors say Gupta, 63, tipped Rajaratnam to the Berkshire investment, prompting Galleon to buy 267,000 Goldman Sachs shares. Galleon made almost $1 million in profit on the trade at a time of stock market turmoil, the government says.

Gupta is also accused of passing tips involving the earnings of New York-based Goldman Sachs and transactions involving Cincinnati-based Procter & Gamble Co, the world’s largest consumer-products company. Gupta, who denies wrongdoing, was a director at both companies.

Gupta, who ran McKinsey, a consulting firm, from 1994 to 2003, is charged with conspiracy and securities fraud.

Prior witnesses in what the defense has called a “circumstantial case” told jurors that Gupta participated by phone in the Goldman Sachs board meeting on September 23, 2008, and that Galleon rushed to buy shares in the bank after Rajaratnam got a call minutes before the stock market closed.

There is no direct evidence that the caller was Gupta, defense attorney Gary Naftalis told jurors earlier this week.

Prosecutors on Thursday summoned to the witness stand Mark Belgya, the chief financial officer of J.M. Smucker Co. Gupta is accused of giving Rajaratnam secret information about P&G’s 2008 sale of its Folgers Coffee unit to Smucker.