A Goldman Sachs Inc director told hedge fund founder Raj Rajaratnam about Berkshire Hathaway's $5 billion investment in Goldman before the deal became public, the Wall Street Journal reported on Friday, citing a person close to the situation.

In late September 2008, at the height of the financial crisis, Goldman won a $5 billion investment from Warren Buffett's Berkshire Hathaway as a vote of confidence.

According to the Wall Street Journal article, federal prosecutors notified Goldman director Rajat Gupta in a letter that they had intercepted his phone conversations with Rajaratnam.

The founder of Galleon Group hedge fund was arrested last October 16. He is fighting criminal charges, based largely on wiretap evidence, that he traded illegally in 12 stocks. He is free on bail.

The exact nature of any conversations between Gupta and Rajaratnam could not be determined, the newspaper reported.

On March 19, Goldman announced Gupta would step down as director, but it was unclear at the time that there was any association with the Galleon case. His term ends next month.

Gupta's attorney, Gary Naftalis, said in a statement on Friday that his client had done nothing improper.

Rajat Gupta's record of ethical conduct and integrity in his professional and personal life is beyond reproach, the statement said. He has made extraordinary philanthropic and civic contributions in the United States, India and around the world. He has never violated any laws or rules nor done anything improper.

Goldman Sachs spokesman Ed Canaday declined to comment.

In a March 22 letter made public in Manhattan federal court two weeks ago, prosecutors said they were examining trades by Rajaratnam and others in several companies, including Goldman Sachs, which were not previously disclosed in the case.

In another letter, entered in the court record by Rajaratnam's lawyers on April 16, the government listed Goldman shares among more than 20 additional stocks, without formally adding those to the charges.

Rajaratnam conspired to obtain material, nonpublic information about the quarterly earnings of Goldman Sachs Group Inc prior to Goldman's public announcement of quarterly earnings on or about June 17, 2008 and December 16, 2008, the letter said.

In addition, Rajaratnam conspired to obtain material, nonpublic information about the purchase of Berkshire Hathaway of preferred stock in Goldman prior to Goldman's public announcement of this transaction on or about September 23, 2008.

No identity of any Goldman employee or director was disclosed in the court document. The bank's shares traded between $74 and $125 over the June to September 23, 2008 period.

A spokeswoman for the office of the Manhattan U.S. Attorney, which is prosecuting the case, also declined to comment.

The government has described its case as the biggest hedge fund insider trading investigation in the United States. Out of 21 traders, lawyers and executives facing criminal and civil charges, 11 have pleaded guilty, many of them former Galleon employees or business associates and friends of Rajaratnam.

A spokesman for attorneys representing 52-year-old Rajaratnam declined to comment on Friday.

Rajaratnam and another principal defendant, former New Castle Funds LLC trader Danielle Chiesi, have pleaded not guilty to the charges. Their trial is scheduled to start in October.

Separately, in an interview with Bloomberg News, Berkshire director Thomas Murphy said Warren Buffett remained comfortable with the $5 billion investment his company Berkshire Hathaway made in Goldman Sachs in 2008.

(Reporting by Sakthi Prasad in Bangalore, Grant McCool in New York; editing by Will Waterman and Andre Grenon)

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