Government Makes Case for Wiretaps Against Gupta

Rajat K. Gupta, with his lawyers Gary Naftalis, left, and Alan R. Friedman, right. Peter Foley/Bloomberg NewsRajat K. Gupta, with his lawyers Gary Naftalis, left, and Alan R. Friedman, right.

Prosecutors are seeking to have three wiretap recordings featuring the convicted hedge fund manager Raj Rajaratnam admitted as evidence at the trial of Rajat Gupta, the former Goldman Sachs director accused of leaking inside information about the Wall Street firm. The move, however, is likely to be hotly contested by Mr. Gupta’s defense team, which will point out that Mr. Gupta is not on any of the calls and was not the source of the information.

Mr. Gupta is accused of providing undisclosed details about Goldman Sachs to Mr. Rajaratnam, who was convicted of insider trading last May and sentenced to 11 years in prison. In the taped conversations, Mr. Rajaratnam boasts to a colleague that a Goldman director had tipped him off about the bank’s coming earnings announcement. On another call, Mr. Rajaratnam tells his trader that he’s been told something good is going to happen at Goldman.

“Rajaratnam’s statements in these three recorded conversations are essential evidence of the insider trading charges against Gupta in this case,” according to a memo written by Reed Brodsky and Richard Tarlowe, assistant United States attorneys.

But prosecutors do not have recorded conversations of Mr. Gupta leaking this information to the hedge fund tycoon, a potential weakness that the defense will seek to exploit.

And among those on the recordings, none are available to testify during trial about the contents of the call. Mr. Gupta has denied any wrongdoing. His defense lawyer, Gary Naftalis, has said that the source of the Goldman leak was not from Mr. Gupta, but rather Goldman executives who have been swept up in the government’s widespread crackdown on insider trading.

Accompanying those recordings, call records show that shortly after the end of Goldman board meetings where inside information was disclosed, Mr. Gupta placed calls to Mr. Rajaratanam. In turn, following close on the heels of those calls, Mr. Rajaratnam instructs his staff to execute big trades in Goldman shares.

The issue of whether the calls would be admissible during Mr. Gupta’s trial has loomed large since his indictment last October. Mr. Gupta is the most prominent business leader arrested in the government’s quest to ferret out insider trading on Wall Street. As managing partner at McKinsey & Company, the white-shoe consulting firm, he advised some of the most significant corporations in the world. He also served on the board of AMR, the parent of American Airlines, and Procter & Gamble.

The calls outlined by prosecutors in their latest filing first played at Mr. Rajaratnam’s trial last year, before Mr. Gupta was indicted on insider trading charges. Mr. Gupta has now been charged with leaking information about Goldman’s 2008 third-quarter earnings, and revealing the details of a $5 billion investment that Warren Buffett planned to make in the company during the depths of the financial crisis. He has also been charged with tipping sales forecasts about Procter & Gamble.

Government motion in U.S. v. Rajat Gupta