Authors: Anita Raghavan
Tags: #Finance, #Business & Economics
Gupta’s name was second on the list, just after Rajiv Goel, the former Intel Treasury executive and Rajaratnam informant who had pleaded guilty.
Among the others: Parag Saxena; Stanley Druckenmiller, whose name Eisenberg had starred, though she could not remember why; and Anil Kumar. Ironically, the notebook, which surfaced in response to a defense subpoena of documents from Eisenberg, bolstered the government’s contention that Gupta and Rajaratnam were far closer than Gupta was willing to admit.
It got worse for Gupta.
Eisenberg testified that on the afternoon of September 23, 2008, she remembered getting a call about ten minutes before the market closed. The caller, a man, said it was “urgent” and that he needed to speak to Rajaratnam. Eisenberg said she recognized the man’s voice as someone who was on the list of important callers, a person who telephoned frequently, but she could not recall his name. She put the call on hold and went to find Rajaratnam. He returned to his office quickly, closed the door, and had a brief conversation with the man.
Eisenberg testified that moments later Rajaratnam called his lieutenant Gary Rosenbach into his office. The door was closed again and Eisenberg could not hear their conversation, but when Rosenbach walked out of Rajaratnam’s office, he barked an order to the entire trading desk: “Buy Goldman Sachs.” Eisenberg said she heard Rosenbach repeat the order a few times and, for emphasis, she said it again: “Buy Goldman Sachs. Buy Goldman Sachs.”
The trial had hit a fever pitch on its first day of evidence. Minutes after her testimony, the words “buy Goldman Sachs, buy Goldman Sachs” echoed through the quiet, high-ceilinged courtroom. After Rajaratnam received the call, he was “smiling more,” Eisenberg added. It was a small detail that seemed to take away from the credibility of her testimony rather than add to it.
Under cross-examination, David Frankel, a soft-spoken defense lawyer who contemplated a PhD in English before settling on being an attorney, tried to undermine Eisenberg. The best he could do was to elicit that she had worked as a party planner for a year after college. But he succeeded in drawing out that a Goldman salesman, David Loeb, was also on her list of important callers. Loeb was under investigation by the government for passing inside information about Intel, Apple, and Hewlett-Packard to Rajaratnam. He has not been charged with any wrongdoing, and since the trial ended the investigation into Loeb has been closed. But Loeb quietly left Goldman in early 2013.
In a bid to show that the government had the “wrong man on trial,” the defense suggested that the tip-off to Rajaratnam could have come from Loeb. Eisenberg swiftly doused that theory. When Loeb called, “he always said hello to me and was extremely friendly,” she recalled. The manner and style of the person who called just before the market closed was different.
The drama continued. Some of the witnesses the government put on during its three-week case appeared to walk out of central casting. Ananth Muniyappa, a Galleon employee who provided important testimony about getting an order from Rajaratnam to buy Goldman stock just before the market closed on September 23, 2008, played the part of the cocky young hedge fund trader. He took the stand wearing an untucked plaid shirt and sporting designer jeans. Byron Trott, the Goldman banker who had helped craft Warren Buffett’s investment in the firm, was predictably tall, handsome, and smooth-talking. He came to court dressed in a dark suit, tie, and white shirt. In an amusing and somewhat absurd sidebar that highlighted the familiar give-and-take between Naftalis and Judge Rakoff, Naftalis took issue with Trott’s characterization of Buffett.
“I don’t think it is appropriate for this witness and the prosecution to be characterizing Warren Buffett as the most respected investor in the world,” joked Naftalis.
“Well, we corrected that, and I know your broker disagrees strongly,” countered Judge Rakoff.
“Warren has not done so well lately, we all know. He is a little played out,” said Naftalis. Few in the courtoom knew it, but in the early nineties, when Naftalis represented Salomon Brothers, which was embroiled in a Treasury bond rigging scandal, he accompanied Buffett and two top Salomon lawyers to make a presentation to Manhattan US attorney Otto Obermaier, successfully persuading him not to indict Salomon.
On May 25, the fifth day of the trial, the government called to the witness stand Goldman board member William George. Just weeks before the trial started, he was substituted for John Bryan, the director who was closest to Gupta, as the Goldman board witness. On May 4, Brodsky, the lead prosecutor in the Gupta trial, sent Naftalis and his team of lawyers a letter via email advising that in a meeting on April 30, Bryan said he did not recall “one way or another” if he learned Goldman was losing nearly $2 a share in a board posting call on October 23, 2008. The previous summer in a videoconference interview, Bryan, who lives in Chicago, had indicated to Brodsky that he remembered Blankfein saying Goldman was losing $2 a share in the October call. His lapse in memory—or perhaps his reluctance to testify against his good friend Gupta—posed a big problem for the prosecution. If the government put Bryan on the stand, the defense could grill him on the inconsistencies between his first and second interviews with the government.
To avoid that, the prosecution decided to put George on the witness stand, even though it knew that he could not testify to hearing Blankfein tell the board that Goldman was going to lose $2 a share. The $2 number was important because it dovetailed with the comment Rajaratnam made the next day to his lieutenant in Singapore. But the best recollection George had of the October 23, 2008, board call was simply that Goldman was going to lose money.
By Friday, June 1, the ninth day of the trial, the strains of the taxing case began to take their toll on the Gupta family. The day kicked off with a discussion outside the presence of the jury of whether to admit the notes of Heather Webster, a J.P. Morgan private banker who met with the Guptas in April 2008. Webster’s notes, taken during a meeting in the study of Gupta’s waterfront home in Westport, offered a rare peek into the family’s wealth. At the time, Gupta and his wife had assets of $134 million—a net worth of $84 million, an irrevocable trust of $38.5 million, and $11.2 million in cash and liquid assets. Under the section in her notes regarding estate planning, Webster had noted that the Guptas wanted to give 80 percent of their money to charity.
The prosecution sought to admit Webster’s notes because in her financial review of the Guptas she had asked for an update on his sources of income. In the notes she took at the time, she wrote, he was “Chairman, Galleon International, $1.3 billion, 15 percent owner, invests in long/short equity Asia, entitled to performance fees.” For the prosecution, which was seeking to show the jury that Gupta was in a position to benefit from the insider tips he gave Rajaratnam—an important element of proving insider trading—Webster’s notes were critical. Gupta may not have received cash in briefcases like Marty Siegel had, but he had a vested interest in Galleon’s success.
Naftalis argued vehemently that Webster’s notes should not be admitted because it would leave the jury with a misleading impression of Gupta’s role at Galleon. He had an informal arrangement with the hedge fund, and he and Rajaratnam had never reached a signed agreement about Gupta becoming chairman of Galleon International. “Nothing was agreed and nothing ever happened,” said Naftalis. The only part of the notes Naftalis would have admitted was the reference to Gupta’s desire to give most of his money to charity.
At one point, Judge Rakoff, who stepped in to elicit testimony from Webster, asked the prosecutor Brodsky whether Gupta’s arrangement to be chairman and work for Galleon International happened or not.
“It is both,” replied Brodsky.
“You think it was like science fiction? It was and it wasn’t,” Judge Rakoff asked.
Brodsky said Gupta was negotiating for a 20 percent stake in Galleon International—more than promised by Rajaratnam. The matter had not been settled. Judge Rakoff ultimately ruled that the notes could be admitted, but he disallowed testimony on Gupta’s philanthropic plans, saying, “The annals of white-collar crime in this district are filled with people who wanted to make themselves respected, powerful members of society by giving to charity.”
In one of his rare displays of emotion, Gupta shook his head, clasped his hands in resignation, and looked up. Anita Gupta, flanked by two of her daughters, bowed her head and then left the courtroom.
That afternoon, Anil Kumar, Gupta’s friend and longtime protégé, took the stand. A pro by now at testifying for the government, he came to court without his lawyer, Greg Morvillo. (In December 2011, Greg’s father, Robert, passed away.) As Kumar walked into the well, his head bowed, Gupta’s eyes followed him. He raised his eyebrows and looked back at his wife, who was sitting in the first row of the spectators’ gallery. Kumar was a star witness for the government in the Rajaratnam case. But how would he perform in the case against his old boss, Gupta?
As the courtroom deputy swore Kumar in and he spelled his name, his voice cracked. During a sidebar later, his discomfort showed. He looked everywhere—at the judge’s bench, under the computer monitor before him—everywhere but at Gupta, who was seated directly in front of him. Gupta stared straight ahead, avoiding eye contact with Kumar.
After rehashing some of the testimony he had served up at the Rajaratnam trial, Kumar testified about the business dealings between Rajaratnam and Gupta, particularly how they came to start New Silk Route. He told the jury how in mid- to late October 2008 he heard from Gupta that he had lost his $10 million investment in Voyager. Brodsky was trying to establish the timing of Gupta’s dispute with Rajaratnam over Voyager. If Kumar was to be believed, the dispute came after the insider tips on Goldman and Procter & Gamble.
In his questioning of Kumar on Monday, June 4, defense lawyer Naftalis tried to show that the statements Kumar had made in previous interviews with the government were consistent with Gupta’s defense.
“Did you tell the government that Mr. Gupta felt that Mr. Rajaratnam had not kept a straight book?” asked Naftalis.
“Yes, sir,” responded Kumar.
During the middle of the lunch break, a black Mercedes-Benz SUV with blacked-out windows pulled up outside the entrance of the federal courthouse. A swarm of photographers and cameramen rushed to the car. Everyone was expecting Goldman’s chief executive, Lloyd Blankfein, who was scheduled to testify that afternoon at the Gupta trial. But when the door opened, a scrawny leg protruded. A bouncer appeared and shouted: “Stand back, stand back.”
Emerging from the SUV was Paris Hilton, dressed in a blue suit, blue stockings, and her famous outsized white sunglasses—not that she needed them amid the cloudy skies. She had arrived for a settlement conference involving a dispute with an Italian lingerie company. Before she strode into the courthouse, she smiled and posed for photos.
Blankfein, meanwhile, dressed more conservatively in a white shirt, blue suit, and red tie, was already upstairs waiting to testify. He had permission to come into the courthouse via its underground parking garage. After he was sworn in, Judge Rakoff couldn’t resist the opportunity to question Blankfein. In asking Blankfein some routine biographical questions, Brodsky skipped over his brief career as a lawyer some thirty years before. Judge Rakoff jumped in to correct the omission.
“I’m sure you want to hide the fact that this witness is a lawyer,” said Judge Rakoff. Then he turned to Blankfein and asked, “Did you go to law school?”
Blankfein said he had worked for a law firm for four and a half years as a corporate tax lawyer.
“Then you got religion,” said Judge Rakoff.
“It was a mutual decision,” quipped Blankfein.
The Goldman chief executive was the star of the government’s case. And his wattage again ensured a packed courtroom. But much of what Blankfein said was a replay of the testimony he’d delivered the previous year at the Rajaratnam trial. During one sidebar between the attorneys and the judge, he grinned at the jury, craned his head to see what the lawyers were discussing, and fidgeted, looking everywhere but directly ahead at Gupta.
The former Goldman board member seemed equally uncomfortable during Blankfein’s testimony. He often glanced back at his wife, Anita, and during one sidebar, he even got up from his chair and leaned over to speak to his wife. She stretched out her hand in a show of solidarity.
Blankfein offered tutorials to the jury on the basics of corporate finance. Asked what it meant when Goldman posted record profits one quarter, he said, “That means it’s better than it has ever been before.” The one area where he shed new light was recalling his conversations with Gupta about taking up an advisory position at the private equity firm Kohlberg Kravis Roberts & Co.
Blankfein testified that when Gupta told him that he was thinking of accepting the KKR role, Blankfein said it “presented certain conflicts” to Goldman. Gupta disagreed, and the two were set to part ways. A draft press release was prepared announcing Gupta’s resignation from the Goldman board and celebrating his tenure on it. To mark his time as a board member, Goldman gave him some cuff links.
But unexpected events intervened. In September 2008, when Lehman Brothers “quite famously went bankrupt,” Blankfein said he asked Gupta to withdraw his resignation and remain on the board. With the markets in turmoil, it didn’t seem like a lot of private equity business was going to get done, and the conflict didn’t “loom as large,” said Blankfein. Gupta remained on the Goldman board and took up the advisory position at KKR.
At one point, Brodsky asked Blankfein if he knew how much Gupta was going to earn at KKR. The defense objected, but just as Judge Rakoff said, “You may answer yes or no,” Blankfein uttered “Five,” clearly meaning $5 million. Gupta’s jaw dropped.
Blankfein’s testimony had to be spread over the course of a week because he had an important engagement midweek: his daughter was graduating from Fieldston School, a leafy private school north of Manhattan. Blankfein told Judge Rakoff that it would be hard to get to the courthouse after the celebratory lunch he planned to attend in Yonkers.