NEW YORK (Reuters) – U.S. prosecutors in the insider trading trial of former Goldman Sachs and Procter & Gamble board member Rajat Gupta won a judge’s tentative approval on Wednesday to present three telephone call recordings between his onetime friend and convicted hedge fund founder Raj Rajaratnam and two traders.
Gupta, the most prominent corporate figure indicted in a U.S. government crackdown on insider trading at hedge funds in recent years, goes on trial on Monday in U.S. District Court in Manhattan charged with being in a conspiracy with Rajaratnam. The Galleon Group hedge fund founder was convicted a year ago on evidence largely based on court-approved wiretaps of his phones.
In making a pre-trial ruling on Wednesday, U.S. District Judge Jed Rakoff emphasized it was not final.
Rakoff said the three calls in September and October 2008 “are admissible subject to connection in furtherance of the alleged conspiracy between Mr. Gupta and Mr Rajaratnam.”
The judge said the government runs the risk that, if the connection is not made, there is potential for a mistrial. During the trial, Gupta’s lawyers have the right to ask the judge to exclude government evidence.
Federal prosecutors accuse the former Goldman Sachs Group Inc (GS.N) and McKinsey & Co global head of giving Rajaratnam information from Goldman and Procter & Gamble Co (PG.N) board meetings in 2007 and 2008. In addition to sitting on the Goldman board, Gupta also was a director at P&G.
Gupta denies the charges.
The three phone calls the government wants admitted at trial were between Rajaratnam and two of his employees in which he makes references to receiving tips about Goldman. There are no recordings of phone conversations between Gupta and Rajaratnam on the dates at issue – September 23 and on October 23, 2008.
Gupta’s lawyers argue that the evidence against him is circumstantial. Main defense lawyer Gary Naftalis argued that toll records show brief phone connections between the men.
“There may not even have been a conversation,” Naftalis said in court on Wednesday. “We are dealing with speculation upon speculation here.”
Gupta, 63, is charged with five counts of securities fraud and one count of conspiracy. He says he lost money investing with Rajaratnam and that as many as four other Goldman personnel could have tipped off Galleon. Gupta could face up to 25 years in prison if convicted.
Rajaratnam, 53, is serving an 11-year prison sentence, the longest handed down in an insider-trading case in the United States.
Prosecutors say Gupta gave Rajaratnam advance knowledge of a $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) (BRKb.N) at the height of the 2008 financial crisis, Goldman’s surprise fourth-quarter 2008 loss, and P&G’s quarterly earnings in late January 2009.
The government also accused Gupta of providing non-public information about Smucker’s acquisition of Folgers from P&G in June 2008.
The case is USA v. Gupta, U.S. District Court for the Southern District of New York, No. 11-907.
(Editing by Andre Grenon)