Wednesday, 30 July 2014
Last updated 6 hours ago
May 23 2012 | 11:47am ET
Galleon Group founder Raj Rajaratnam kept a star-studded list of "important people" allowed to interrupt him at any time—including former McKinsey & Co. chief Rajat Gupta, who is on trial for tipping the convicted insider-trader.
Witness testimony began yesterday in Gupta's trial, with prosecutors focusing on the centerpiece of their case: the allegation that Gupta, who served on Goldman Sachs' board, gave Rajaratnam advance word of Berkshire Hathaway's planned $5 billion investment in the bank in September 2008.
Two former Galleon employees, Rajaratnam's former executive assistant and a trader, backed up the government's version of events. The assistant, Caryn Eisenberg, testified that Rajaratnam received an "urgent call" at about 3:54 p.m. on Sept. 23, 2008, from a number used by Gupta's assistant. According to Eisenberg, Rajaratnam brought Galleon co-founder Gary Rosenbach into his office after the phone call, and that she heard Rosenbach say "buy Goldman Sachs" on his phone afterwards.
Former Galleon trader Ananth Muniyappa testified that Rajaratnam ordered him to buy 100,000 shares of Goldman while he "was either still on the phone or just getting off the phone." Muniyappa said he and Rosenbach raced to buy 267,000 Goldman shares; Rajaratnam "wanted it executed by the end of the day, definitely."
Prosecutors say that Gupta called Rajaratnam to give him the news of the Berkshire investment just 16 seconds after getting off a conference call with the Goldman board. The bank announced the investment after the market closed on Sept. 23.
After the market close, Eisenberg testified that Rajaratnam "was smiling more." The news of the Berkshire investment was the talk of the Galleon offices the following day.
"It was memorable because Warren Buffett is a very important and influential man, and he didn't typically make investments in companies like Goldman Sachs."
Prosecutors say that Galleon made $1 million on the Goldman trade.
Eisenberg said that Gupta, whom her notes described as a "good friend" of Rajaratnam's, was already on the "important people" list when she started at Galleon in January 2008. He was one of only five people on the list at the time; the others were Duquesne Capital Management founder Stanley Druckenmiller, Intel Corp.'s Rajiv Goel, McKinsey partner Anil Kumar and Parag Saxena, CEO of New Silk Route, the investment firm co-founded by Rajaratnam and Gupta.
Over her almost two years at the firm, the list grew to about 10 names, including Rajaratnam's former co-defendant Danielle Chiesi and Goldman Sachs Asian equity sales chief David Loeb. Chiesi, Goel and Kumar all pleaded guilty in the Galleon case and Loeb is currently under investigation. Neither Druckenmiller, now retired from the hedge fund business, nor Saxena has ever been accused of wrongdoing.
Gupta's lawyers sought to show that the relationship between their client and Rajaratnam was not as strong as prosecutors claim. Defense attorney David Frankel noted that Rajaratnam pointedly failed to invite Gupta on a February 2008 trip to Atlantic City at the end of their fantasy football season. Druckenmiller, Tudor Investment Corp.'s Paul Tudor Jones and at least two Goldman executives were on the helicopter trip, and Goldman President Gary Cohn may have joined, as well.
In addition, Eisenberg testified that Rajaratnam sometimes had her lie to Gupta to avoid seeing or speaking to him, even though she said Gupta was a frequent visitor to Galleon's midtown Manhattan offices.
"Lying, as in saying he wasn't in the office," Eisenberg said. "He may have snuck out of the building to avoid" Gupta, she added.
Frankel also pointed to a February 2008 instant message between Eisenberg and another Rajaratnam assistant, Anita Teglasi.
"Raj made me lie to Rajat," Eisenberg wrote. "He doesn't want to see him."
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…