Trial of Ex-P&G, Goldman Board Member Starts in NY

The July 29, 2008, phone call between two titans of Wall Street began with the old friends exchanging mild pleasantries, but then quickly turned serious and — by the government's account — criminal.

Hedge fund manager Raj Rajaratnam asked about a rumor that Goldman Sachs "might look to buy a commercial bank." On the other end of the phone, then-widely respected Goldman board member Rajat Gupta confided there was a "big discussion" on the subject at a recent meeting.

Prosecutors will try to convince a jury that the intercepted call shows Gupta was providing inside tips that gave Rajaratnam an illegal edge in massive stock maneuvers. Defense lawyers say they'll argue Gupta was a straight-shooter who only shared public information with the billionaire hedge fund boss, as devoted to raising money for charity as to Goldman's bottom line.

Jury selection is scheduled to begin Monday in federal court in Manhattan. The trial is scheduled to last up to four weeks.

The same 24-minute phone call that's central to the Gupta case helped convict Rajaratnam — a former multibillionaire born in Sri Lanka — last year in the same courthouse. The Galleon founder is serving an 11-year prison sentence, the longest ever given in an insider trading case.
Rajat Gupta
AP
FILE- In this Jan. 5, 2012 file photo, former... View Full Caption

Rajaratnam has been the biggest catch so far in a wide-ranging insider-trading investigation by U.S. Attorney Preet Bharara that's resulted in more than two dozen prosecutions of white collar defendants. But based on Gupta's standing in the world of finance, his trial could draw more attention — and a potential conviction could resonate farther.

Aside from his role at Goldman Sachs, the Indian-born Gupta is the former chief of McKinsey & Co., a highly regarded global consulting firm that zealously guards its reputation for discretion and integrity.

Gupta, 63, is also a former director of the huge consumer products company Procter & Gamble Co., a pillar of American industry and one of the 30 companies that make up the Dow Jones industrial average. P&G owns many well-known brands including Bounty, Tide and Pringles.

The Westport, Conn., resident has pleaded not guilty to one count of conspiracy to commit securities fraud and five counts of securities fraud, charges that carry a potential penalty of 105 years in prison. He remains free on $10 million bail.

Prosecutors in effect previewed their case against Gupta at the Rajaratnam trial.

Jurors heard testimony that at an Oct. 23, 2008, Goldman board meeting, members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999.

Prosecutors produced phone records that they said show Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning and save millions of dollars.

Rajaratnam also earned close to $1 million when Gupta told him that Goldman had received an offer from Warren Buffett's Berkshire Hathaway to invest $5 billion in the banking giant, prosecutors said.

Also played at trial was the tape of Rajaratnam grilling Gupta about whether the Goldman Sachs board had discussed acquiring Wachovia or an insurance company.