New York: Indian-origin former Goldman Sachs director Rajat Gupta's lawyers are seeking to show a jury in his insider trading trial that convicted hedge fund founder Raj Rajaratnam "exaggerated" and "bragged" about having sources of inside information.
Gupta's lawyer Gary Naftalis asked a former Galleon portfolio manager Michael Cardillo during cross-examination on Wednesday about the claims Rajaratnam and other Galleon traders made about their sources of illegal tips.
"Were there others at Galleon who claimed to have sources of inside information that they did not have," Naftalis asked.
The prosecutors objected to this and US District Judge Jed Rakoff barred Cardillo from answering.
Naftalis reframed his question and asked, "At morning meetings with Raj Rajaratnam, did people talk about or exaggerate their sources of inside information from time to time," Naftalis asked.
"There were rare occasions when it happened," Cardillo said.
Cardillo has pleaded guilty and is cooperating with prosecutors in the insider trading case. During his testimony, he has said he traded on the stock of Proctor and Gamble in 2009 after learning that Rajaratnam had a "guy" on the company's board.
Gupta, who was McKinsey head from 1994 to 2003, has been accused of leaking tips about P&G and Goldman Sachs to Rajaratnam, currently serving an 11-year prison term. Gupta has pleaded not guilty to the charges, which carry a maximum 20-year prison sentence.
Naftalis asked Cardillo if he had heard Rajaratnam, his brother R K Rajaratnam or other Galleon traders talk about sources of illegal tips about companies such as Kraft Foods or Chico's FAS.
Cardillo said he once saw the two brothers discussing the possibility of Kraft acquiring chocolate maker Cadbury.
Rajaratnam's brother had worked at Kraft before joining Galleon as a portfolio manager.
"Raj had said to RK, 'You'll get the heads-up if this is coming together. You'll get the heads-up on that,'" Cardillo said. "I didn?t know if it was feasible or probable."
"You were skeptical," Naftalis asked Cardillo to which he replied, "Yes, I didn't think he was ever going to get that information."
Cardillo has been charged with one count of conspiracy and one count of securities fraud but is yet to be sentenced.
He said that beginning late 2009, he agreed to wear a concealed recording device for the FBI and record conversations between his former Galleon friends and colleagues, a point which Gupta's lawyers sought to use discredit Cardillo.
The lawyers are seeking to portray him as someone who was seeking leniency for his cooperation with investigators.
The government has also claimed that Gupta was at Rajaratnam's hedge fund Galleon's offices on March 12, 2007 when he listened to the Goldman Sachs call where the bank's first quarter 2007 earnings were discussed.
Gupta then passed the information to Rajaratnam, who bought 350,000 shares after audit committee meeting call ended, prosecutors have alleged.
Assistant US Attorney Reed Brodsky showed to the jury Gupta's calendar for that day, which showed that Gupta had scheduled a teleconference of the audit committee of Goldman Sachs Board of Directors in which "First Quarter Earnings Review" would be discussed from late morning to noon.
Gupta's calendar also shows that he had a meeting from noon to 2:30 p.m. That same day with venture fund New Silk Route at "Galleon Office."
Prosecutors allege that Gupta invested about USD 35 million in various funds with Rajaratnam, including the New Silk Route and Voyager Capital.
PTI
