Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, March 26, 2011

Third Week of Rajaratnam's Trial: Testimony from Goldman CEO

During the third week of Raj Rajaratnam's trial, the star witness was clearly Goldman Sachs CEO Lloyd Blankfein, who testified on Wednesday.  The government called him to testify that Rajat Gupta, the former Goldman director, violated the company's confidentiality policy when Gupta gave RR information that he learned in his capacity as Goldman director.  Although Gupta is not a defendant in the criminal action (the SEC has brought a civil administrative proceeding against him), his alleged tipping to RR has played a prominent role; during the first days of the trial, the government played a tape of a conversation between the two men, in which Gupta tells RR about board discussions (including Warren Buffet's proposal to invest in Goldman during the financial crisis).  RR's defense attorney, on cross, asked Blankfein about the March 2010 Goldman press release on Gupta's stepping down from the board and whether Blankfein was aware of the government investigation into Gupta?  Blankfein said that he knew there were "some questions" about Gupta's behavior.  (The judge did not allow the defense to elicit much testimony about Goldman's role in the financial crisis.)

The other important witness this week was Rajiv Goel, a former intel executive and longtime friend of RR, who has pleaded guilty to illegally tipping RR.  The government played more tapes of phone conversations between Goel and RR and also presented an Intel executive as a witness to establish that Goel had access to confidential information and that Intel would have fired Goel if it knew he was sharing it with RR.  When Goel took the stand, he testified that he gave RR secret information about Intel because of friendship.  He also testified about the benefits he received from RR: hundreds of thousands of dollars, plus RR made profitable trades in Goel's stock trading account (using inside information, according to the government, which spent a lot of time on these trades).

The strategies of the opposing sides are playing out as predicted.  The government presents tape after tape in which RR is apparently soliciting and receiving inside information from the other party.  Two witnesses who have pleaded guilty to illegal tipping, Anil Kumar last week and Rajiv Goel this week, have testified at length about the confidential information that each of them says he passed on to RR.  Two witnesses (Goldman CEO, Intel exec) have testified about their companies' confidentiality policies. The defense, in turn, introduces research reports and news reports in order to show that the shared information was either already known in the marketplace or was immaterial.

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