Indian American Mr Rajat Gupta, a former director at Goldman Sachs, had violated the firm’s code of conduct by disclosing details from a 2008 board meeting to hedge fund manager, Mr Raj Rajaratnam, the main accused in the largest hedge fund insider trading case to hit US courts, the company CEO, Mr Lloyd Blankfein, has testified.
Mr Gupta, who is accused by the Securities and Exchange Commission (SEC) of passing insider information to Mr Rajaratnam, denies wrongdoing and has sued the US regulator.
The SEC has alleged that Mr Gupta tipped off Mr Rajaratnam about an imminent $5 billion investment in Goldman by Warren Buffett in 2008, and that he also provided the quarterly earnings of Goldman and Proctor and Gamble, where he also served as a director.
Last week, prosecutors played a secretly recorded phone conversation on July 25, 2008, in which Mr Gupta tells the Galleon Group founder that the firm is discussing buying Wachovia or American International Group (AIG).
“This was a big discussion at the board meeting,” Mr Gupta said during the call. It was a divided discussion.”
Mr Blankfein replied “yes” when he was asked by the prosecution whether Mr Gupta violated confidentiality policy in the call about the possible acquisition.
He read out guidelines, which the directors were required to adhere to, including, “directors must maintain the confidentiality of all information so entrusted to them.”
Mr Blankfein said that besides the confidentiality policy, directors also had the duty of putting the interest of the firm first.
When asked if Mr Gupta had violated this duty, he responded, “my sense of it... yes.”
During cross-examination, Mr Blankfein said that the Galleon’s relationship with Goldman Sachs was an important one. “I know it was a prominent client for Goldman Sachs,” he said.
Mr Rajaratnam is accused of making more than $45 million by illegally trading on insider information.