Goldman CEO says Gupta not authorised to divulge board discussions

Goldman Sachs CEO Lloyd Blankfein testified today that the company’s former director Rajat Gupta, accused of insider trading, was not authorised to divulge ‘market-moving’ information he received as a board member to outsiders before the public announcements.

Blankfein, 57, returned to the witness stand yesterday in the insider trading trial of 63-year-old India-born Gupta. He was asked by Assistant US Attorney Reed Brodsky whether Gupta had his permission to share with people outside Goldman about what he learned at board meetings.

“Did you authorise Gupta to disclose on March 12, 2007, any information that was learned at the audit committee meeting to any outsider?” Brodsky asked. “No,” Blankfein said.

The Goldman CEO said Gupta was not authorised to disclose information either of the board’s audit committee in March 2007 or other meetings where the firm discussed quarterly results before it was made public.

Gupta has been accused of sharing information he learnt while sitting on the boards of Goldman and consumer giant Proctor and Gamble with convicted Sri Lankan billionaire Raj Rajaratnam.

Prosecutors say Gupta shared with the Galleon hedge fund founder information about Warren Buffett’s five billion dollar investment in the banking as well as quarterly earnings seconds after he learnt about them at company board meetings.

Gupta has denied any wrongdoing.

Blankfein said the bank’s audit committee is routinely briefed on the firm’s profits, expenses, taxes, capital and dividend before the public release of the data. “Was the information heard at audit committee meetings confidential?” Brodsky asked.

“It was confidential in terms of organisational and management guidelines but ostensibly because the information was very important and market-moving to the stock,” Blankfein said. “There’s a lot of speculation about what results of the quarter would be. This resolves the speculation”.

Blankfein also spoke about Gupta’s decision in September 2008 to resign from the board and work as an adviser for financial firm KKR. Blankfein said a news release announcing Gupta’s departure was drafted but was never issued since the timing co-incided with the Lehman Brothers bankruptcy.

He testified that he decided to ask Gupta to remain on the board because his departure, “might be perceived as a crisis was going on at Goldman Sachs”.

On cross examination, Gupta’s attorney Gary Naftalis asked Blankfein if Gupta had given “long and good service” to Goldman Sachs in his 2007-2008 tenure.

“It wasn’t long, but it was good, we were honouring his service,” Blankfein said smiling, eliciting a brief laughter from Gupta and the courtroom’s audience. While Gupta didn’t resign, Goldman Sachs gave Gupta a pair of cufflinks for his service, Blankfein said at the high-profile trial.

“A draft news release was drafted, honouring his service, which was long and good?” Naftalis asked. Blankfein said he ultimately convinced Gupta not to leave Goldman’s board because the departure, at the height of the financial crisis, might have been “perceived that he was resigning because of the crisis and because of something that was going on at Goldman Sachs”.

FBI agent James Barnacle testified for the government about Galleon trading data and records of calls between phones associated with Gupta and Rajaratnam. He reviewed records of phones used by Rajaratnam and Gupta during the time period in which the FBI had a court-authorised wiretap of Rajaratnam between March and December 2008.

Barnacle testified he found 150 different calls between the telephones both men used. According to Barnacle, someone using a phone line associated with Gupta’s assistant had called Rajaratnam’s line at Galleon at 4:50 p m on October 23, 2008, just 23 seconds after a call with Goldman Sachs on the same line ended.

Records showed that the next day Galleon traders sold 150,000 Goldman Sachs shares just ahead of news that the bank incurred losses in the quarter, the agent said. Galleon saved USD 3.8 million by selling the shares at the time, he said.

“By selling the stock on October 24, the traders avoided losses in the stock because of the resulting price decline,” Barnacle told jurors. In another tip about P&G Gupta allegedly provided to Rajaratnam, Galleon earned more than $ 10 million on trades.

During Barnacle’s cross examination, defence attorney David Frankel showed that the information he gave through his charts was incomplete and misleading. Barnacle’s records had omitted important trading data and there was no indication who was actually speaking on the calls.

Prosecutors are expected to rest their case today after the defense concludes Blankfein’s questioning.

PTI