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The Globe and Mail

Ex-Goldman director Gupta loses wiretap ruling

- Former Goldman Sachs board member Rajat Gupta exits Manhattan federal court with his attorney Gary Naftalis, right, following his arraignment, Wednesday, Oct. 26, 2011, in New York.

AP Photo/ Louis Lanzano/AP Photo/ Louis Lanzano

Former Goldman Sachs Group Inc. director Rajat Gupta has lost his bid to suppress wiretap evidence at his coming criminal trial on charges that he leaked boardroom secrets to hedge fund founder Raj Rajaratnam.

But Mr. Gupta also won a key victory as U.S. District Judge Jed Rakoff in Manhattan directed federal prosecutors to review U.S. Securities and Exchange Commission notes from a separate civil fraud case and turn over to the defence any evidence that might show Gupta's innocence.

Mr. Gupta, a former global head of the McKinsey & Co consulting firm, is the most prominent corporate executive charged in the U.S. government's sweeping investigation of illicit trading on Wall Street. His criminal trial is set for May 21.

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Prosecutors say he tipped his friend, Mr. Rajaratnam, between March, 2007, and January, 2009, about developments at Goldman and Procter & Gamble Co, where Mr. Gupta was also a director.

Judge Rakoff also ruled on Tuesday that Mr. Gupta's lawyers could depose Goldman chief executive Lloyd Blankfein and ask him about meetings he held with federal investigators about the case. He was already expected to be called as a government witness at the trial.

Among the tips that Mr. Gupta is accused of providing to Mr. Rajaratnam was Goldman's winning a surprise $5-billion injection from Warren Buffett's Berkshire Hathaway Inc. at the height of the 2008 financial crisis.

Judge Rakoff ruled that the government could use wiretapped conversations at Mr. Gupta's trial, saying that "insider trading cannot often be detected, let alone successfully prosecuted, without the aid of wiretaps."

The conversations include recordings that also were played at the insider-trading trial of Mr. Rajaratnam, founder of the Galleon Group, who was convicted last May and is serving an 11-year prison term.

Judge Rakoff also denied Mr. Gupta's bid to dismiss some criminal counts, which the defendant claimed were vague or duplicative.

Prosecutors charged Mr. Gupta with five counts of securities fraud and one count of conspiracy, but did not accuse him of directly profiting from suspect trades.

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Mr. Gupta was global head of McKinsey for nine years until he retired in 2007. He was also a director of AMR Corp., the parent of American Airlines.

Judge Rakoff directed the SEC to turn over notes on 44 witness interviews it conducted jointly with the U.S. Attorney's Office, and for that office to then disclose any evidence that might help Mr. Gupta's defence.

Judge Rakoff said Mr. Gupta showed a "substantial need" for such evidence, and rejected prosecutors' contentions that they need not review the SEC memoranda because the probes by the Justice Department and the SEC were separate.


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