March 25, 2023

DealBook: At Gupta’s Insider Trial, a Star Goldman Witness and Charts

Lloyd Blankfein, chief executive of Goldman Sachs, arriving at federal court on Thursday with Gregory Palm, Goldman's general counsel, at left.Scott Eells/Bloomberg NewsLloyd Blankfein, chief executive of Goldman Sachs, arriving at federal court on Thursday with Gregory Palm, Goldman’s general counsel, at left.

8:13 p.m. | Updated

Lloyd C. Blankfein, the chief executive of Goldman Sachs, brought star power to the courtroom at the trial of Rajat K. Gupta on Thursday, his second day on the witness stand in the insider trading case.

But while Mr. Blankfein’s presence aroused the packed spectators’ gallery, the jury might have been more impressed with a series of “summary charts” — trading data, bar charts and phone records that crystallized the case that prosecutors have presented over the last three weeks.

The government has charged Mr. Gupta, a former director of Goldman and Procter Gamble, with leaking confidential information about those two companies to Raj Rajaratnam, the former head of the Galleon Group hedge fund. Judge Jed S. Rakoff is presiding over the trial at Federal District Court in Manhattan.

Mr. Rajaratnam was convicted by a jury about a year ago and is serving an 11-year prison term.

The government used James Barnacle Jr., an F.B.I. agent, to methodically walk the jury through the summary charts. The exhibits consisted of phone records documenting Mr. Gupta’s participation in Goldman and P. G. board calls previewing the companies’ earnings. Then, the jury saw charts of aberrational trading at Galleon in the two companies’ stocks in advance of the earnings announcements. Next, the jury was shown the news releases announcing those earnings, followed by spreadsheets listing Galleon’s supposed illegal gains on the trades.

For instance, evidence showed that on March 12, 2007, Mr. Gupta dialed in to Goldman’s board call from Galleon’s offices. About a half-hour after the call ended, Galleon’s traders loaded up on Goldman stock, buying 450,000 shares worth about $91 million.

The next day, Goldman announced a better-than-expected quarter, surprising Wall Street analysts by posting earnings that were 32 percent above estimates. Galleon made about $2 million on the trade.

On cross-examination of Mr. Barnacle, David S. Frankel, a lawyer for Mr. Gupta, highlighted two different money-losing Goldman and P. G. trades that Galleon made after Mr. Gupta is said to have tipped off the firm. Mr. Frankel pointed out that the F.B.I. had not prepared charts highlighting when Galleon lost money, insinuating that the government’s evidence was misleading.

“So you made charts for trading profits but not for losses, correct?” Mr. Frankel asked.

“No, I did not,” Mr. Barnacle said.

Mr. Blankfein followed Mr. Barnacle on the witness stand. He had started his testimony on Monday, but had a two-day hiatus because the trial went dark on Tuesday and on Wednesday the judge granted Mr. Blankfein permission to attend his daughter’s high school graduation.

The government’s direct examination of Mr. Blankfein largely consisted of his testifying about the secrecy surrounding the various board discussions that Mr. Gupta reportedly leaked to Mr. Rajaratnam.

The March 12, 2007, meeting, for example, was confidential, Mr. Blankfein said, because it was “potentially market-moving with respect to our stock.”

During Mr. Blankfein’s cross-examination, Gary P. Naftalis, a lawyer for Mr. Gupta, homed in on September 2008. That month, Mr. Gupta planned to resign from the Goldman board because he was going to take a job at the private equity firm Kohlberg Kravis Roberts Company, presenting potential conflicts. Goldman had prepared a news release on Mr. Gupta’s departure that praised his work on the board. The bank even gave him cuff links as a token of its gratitude for his service, Mr. Blankfein acknowledged.

But given the Lehman Brothers bankruptcy and the global financial crisis that ensued that month, Mr. Blankfein persuaded Mr. Gupta to stay on as a director, he testified, to avoid any perception of instability. Mr. Naftalis used the questioning to suggest to the jury that Mr. Gupta was a valued member of the board.

Mr. Blankfein, dressed in a gray suit and navy tie, appeared at ease on the witness stand, grinning and smirking his way through the testimony. Known for his rapier wit, Mr. Blankfein happily engaged in banter with Mr. Naftalis.

Early in his cross-examination, Mr. Naftalis reviewed Mr. Blankfein’s résumé for the jury, taking him through his brief, earlier career as a lawyer and his ascension at Goldman. Mr. Naftalis noted that Mr. Blankfein became chief executive of Goldman in 2006.

“You became the No. 1 person at Goldman Sachs,” Mr. Naftalis said.

Mr. Blankfein corrected him.

“Chairman and chief executive is my official title,” Mr. Blankfein said. He then broke into a smile. “No. 1’s not an official title.”

Judge Rakoff expressed further frustration with the trial’s slow pace.

He had originally wanted Mr. Blankfein’s testimony to finish on Thursday and the government to rest its case. But Mr. Blankfein was still testifying when the trial broke for the day, meaning that Goldman’s No. 1 will be back in court on Friday, his third day on the witness stand.

This post has been revised to reflect the following correction:

Correction: June 7, 2012

An earlier version of this article referred incorrectly to some of the evidence presented at the trial on Thursday. The evidence showed that Rajat K. Gupta listened to a Goldman Sachs board call from the offices of the Galleon Group hedge fund. It did not suggest that Mr. Gupta allowed Raj Rajaratnam, the former head of Galleon to listen to a conference call among Goldman board members in March 2007.

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