Gupta Tipped Rajaratnam On Folgers Sale, Prosecutors Allege

Jan 6 2012 | 10:11am ET

Former McKinsey & Co. chief Rajat Gupta gave convicted insider-trader Raj Rajaratnam advance word about Procter & Gamble's plan to sell Folgers Coffee in 2008, prosecutors said in court yesterday.

Gupta, who served on the board of directors at Procter, was in court for a preliminary hearing yesterday. During the hearing, attention focused on Procter's $3 billion sale of Folgers to J.M Smucker.

Gupta's five-strong legal team have pressed for more information about the charges against their client, specifically the allegation that Gupta leaked confidential information about companies other than Procter and Goldman Sachs, on whose board Gupta also served. Assistant U.S. Attorney Richard Tarlowe said the other company was Smucker.

"In June 2008, Procter & Gamble sold its Folgers Coffee business to J.M. Smucker," Tarlowe said in response to Gupta lawyer Gary Naftalis' complaint that the indictment was "vague." "The allegation is that Mr. Gupta disclosed the information about that before it was public to Mr. Rajaratnam."

Gupta was Rajaratnam's only source for that information, prosecutors added.

Tarlowe also said that it was "more likely than not" that the government would file a superseding indictment with more charges against Gupta.

Also at the hearing, U.S. District Judge Jed Rakoff dealt a possible blow to Gupta's defense, saying he would not likely become the first judge in the recent raft of insider-trading cases to disallow wiretap evidence. Gupta's lawyers have asked him to do so, arguing that the government is not authorized to use wiretaps in insider-trading cases.

Prosecutors have thousands of wiretapped conversations, including some between Gupta and Rajaratnam. Those tapes helped sink the Galleon Group founder last year; he was later sentenced to 11 years in prison. Rakoff cited Rajaratnam's trial and U.S. District Judge Richard Holwell's ruling that the taps were admissible.

"Looking at it realistically, if I were the defense, I would not be optimistic on this particular motion," Rakoff said.

Gupta's trial is scheduled to begin on April 9.

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