Rajat Gupta trial may hinge on friend Ravi Trehan's testimony

New York: Sage biblical advice impresses on people to choose their friends wisely as they determine the way they go. Former McKinsey & Co. chief Rajat Gupta teamed up with two longtime friends seven years ago to launch investment fund, Voyager Capital Partners. One friend got him into hot soup. The other now could help him get out of it, reported The Wall Street Journal.

In going after high-profile Gupta, federal prosecutors feel they may be reeling in what they consider the big fish in their crackdown on insider trading on Wall Street. Gupta is accused of one count of conspiracy to commit securities fraud and five counts of securities fraud, all related to tips he allegedly fed hedge fund Galleon Group co-founder Raj Rajaratnam. Gupta is accused of leaking inside information about Goldman Sachs and Procter & Gamble, on whose boards he served, to Rajaratnam.

“Another member of that social and investment circle could play an important role at Mr. Gupta’s criminal trial for securities fraud and conspiracy, scheduled to begin May 21,” reported The Wall Street Journal.

[caption id=“attachment_289370” align=“alignleft” width=“380” caption=“Former McKinsey chief and Ex-Goldman Sachs director Gupta is considered consider the big fish in crackdown on insider trading on Wall Street.”] [/caption]

“Ravi Trehan, a likely witness, could buttress Mr Gupta’s argument that he had fallen out with Mr Rajaratnam before at least four alleged inside tips that are at the crux of the prosecution, according to people familiar with the matter,” said the paper.

The Journal said that Trehan, whose role at Gupta’s trial hasn’t previously been disclosed, could now testify about conflicts he and Gupta both had with Rajaratnam related to Voyager Capital Partners, the fund the three men started together in 2005.

Trehan is likely to back Gupta’s defence that ties between Gupta and Rajaratnam had already started fraying by late summer of 2008, because of redemptions and management fees the Galleon chief took from Voyager. “According to the defence argument, Mr Gupta was already alienated from Mr Rajaratnam by September 23, when he is accused of leaking news of a pending $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway & Co,” said the Journal.

Gupta and other Goldman directors approved the $5 billion Buffett deal in a 41-minute board telephone call on 23 September, 2008 according to court records. Sixteen seconds after the board call, Gupta called Galleon and spoke with Rajaratnam for 56 seconds. Based on the 56-second phone call, the FBI accused Gupta of lavishing insider information on Rajaratnam.

It turns out that after speaking to Rajaratnam, Gupta then called his other longtime friend Trehan for two minutes. Trehan says Gupta didn’t breathe a word about the Buffett deal in the call on 23 September. “The call came in 2008 right after Mr Gupta allegedly disclosed Goldman secrets to Mr Rajaratnam. Mr Trehan’s lawyer says he didn’t receive any information about Goldman around the time of the alleged tip,” said the Journal.

Could Gupta have called up both Rajaratnam and Trehan just for the heck of it because they were his longtime friends and associates? “Gupta’s defence team would likely use Trehan’s testimony about the phone call to show jurors that he wasn’t focused on telling associates about the Buffett deal,” reported the Journal.

What has been somewhat damaging for Gupta is that Rajaratnam promptly bought 2,17,200 shares of Goldman stock for Galleon after his call with Gupta. On the other hand, Trehan and his investment firm Broadstreet Group didn’t buy or hold any Goldman stock during 2008.

When Voyager was launched in 2005, Rajaratnam contributed $40 million and Gupta and Trehan invested $5 million apiece, according to court records. Trehan pulled out in 2006, amid conflicts with Rajaratnam, while Gupta upped his stake to $10 million in 2007. The value of the Voyager fund was absolutely destroyed after the dramatic collapse of Lehman Brothers on September 15, 2008 which heralded the financial crisis.