Goldman's Blankfein says ex-director broke rules
Goldman Sachs Group Inc chief Lloyd Blankfein told jurors at Raj Rajaratnam's insider trading trial that a former director at Wall Street's most powerful bank violated boardroom confidentiality in discussions with the accused hedge fund manager.
Blankfein was called to testify by prosecutors in Manhattan federal court about Goldman's results in 2008, and a crucial investment that September by billionaire Warren Buffett at the height of the financial crisis -- secrets the government said were leaked to Rajaratnam.
His appearance on the witness stand for more than three hours intensified the focus on what is already the largest Wall Street insider trading case since the prosecution of speculator Ivan Boesky and junk bond financier Michael Milken in the 1980s.
Speaking clearly into a microphone, Goldman's chief executive officer replied Yes several times in response to prosecutor Andrew Michaelson's questions as to whether disclosure of boardroom talks by ex-director Rajat Gupta would violate the bank's confidentiality policies.
At the end of the morning phase of his testimony, Blankfein shook Rajaratnam's hand. Rajaratnam, 53, looked pensive while listening to Blankfein.
The CEO testified that Rajaratnam's Galleon Group had been a prominent client for Goldman, but he did not regularly communicate with the hedge fund.
Blankfein told jurors that Gupta also had broken Goldman confidentiality policies by telling Rajaratnam about the board's June 2008 discussion of a possible merger with Wachovia Corp or an insurance company.
Blankfein, 56, in a dark suit, white shirt and blue tie, testified to the crowded courtroom that it is important for Goldman directors not to disclose discussions about the publicly-traded bank's business.
We don't want information about our company to get out until it's appropriate, he said.
Prosecutors have accused one-time billionaire Rajaratnam of illegally making $45 million from 2003 to 2009 in stock trades based on tips from insiders, some of whom were highly placed executives in corporate America.
Two longtime friends of Rajaratnam, former McKinsey & Co partner Anil Kumar and former Intel Corp executive Rajiv Goel, have already testified for the government that they leaked company secrets to him in violation of confidentiality policies.
In order to win a conviction, the government's evidence must convince the jury that Rajaratnam received information from someone who had a fiduciary duty to keep it secret.
Rajaratnam's defense is that his trades were based on his own research and publicly available information. He has vowed to clear his name at trial.
Blankfein said it would have been confidential information that Goldman would on September 23, 2008 get a $5 billion investment from Buffett's Berkshire Hathaway Inc, and that Goldman the following month was on its way to a surprise fourth-quarter loss.
We generally make money, Blankfein said, prompting laughter from jurors and others in the courtroom.
Prosecutors played a July 29, 2008 FBI tap of Rajaratnam's mobile phone in which Gupta and Rajaratnam discussed Goldman, Wachovia and insurance giant American International Group Inc.
Blankfein testified that it would have been fine for Gupta as a director to talk generally with outsiders, but that details of Goldman's board meetings themselves are sacrosanct.
The fact that things are discussed in the board meeting is confidential, Blankfein said.
During cross-examination, Rajaratnam lawyer John Dowd showed Blankfein press reports from June 24 and July 11 that year suggesting that Goldman might buy a commercial bank.
The U.S. Securities and Exchange Commission on March 1 accused Gupta of tipping Rajaratnam about Goldman's results and Buffett's investment. It said Rajaratnam made more than $17.5 million in illicit gains from trades on the leaks.
Gary Naftalis, a lawyer for Gupta, declined to comment on Wednesday, and repeated his earlier comments that the SEC allegations against his client are baseless.
Gupta, a former worldwide managing director at the McKinsey & Co consulting firm. has counter-sued the SEC over the case.
The case is U.S. v. Rajaratnam, U.S. District Court, Southern District of New York, No. 09-01184.
(Additional reporting by Dena Aubin, Basil Katz and Lauren Tara LaCapra; editing by Dave Zimmerman)
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