A judge handed the government several setbacks Tuesday in its insider trading prosecution of a former Goldman Sachs board member by letting the company's chairman testify about his interactions with the government and by letting the defense learn more about separate criminal and civil probes.
The rulings were part of a package of pretrial decisions issued by U.S. District Judge Jed Rakoff prior to the April trial of Rajat Gupta, who sat on the boards of Goldman Sachs and the Procter & Gamble Co. when the government alleges he fed inside information to a billionaire hedge fund founder.
The government claimed it could block Goldman Sachs chairman Lloyd Blankfein from testifying about his discussions with government attorneys and at least one FBI agent prior to a seven-hour deposition last month.
It also argued that it could stop Gupta's lawyers from seeing notes produced by the Securities and Exchange Commission after it conducted joint interviews with prosecutors of 44 witnesses because the SEC was not an "arm of the prosecutor."
Rakoff said the government had unwittingly waived any rights it had to keep its discussions with Blankfein secret by questioning him before his deposition. He said Gupta's lawyers could spend two additional hours questioning Blankfein about those talks.
The judge said the government also was obligated to turn over SEC notes from its joint probe that reveal exculpatory evidence because both agencies were involved in fact-gathering, even if they were reaching their own decisions about whether to bring criminal and civil charges.
"That separate government agencies having overlapping jurisdiction will cooperate in the factual investigation of the same alleged misconduct makes perfect sense; but that they can then disclaim such cooperation to avoid their respective discovery obligations makes no sense at all," Rakoff wrote.
Prosecutors say Gupta gave inside information about what he learned from the boards he sat on to Raj Rajaratnam, founder of the Galleon Group funds, when both men were friends. Rajaratnam was convicted at trial of insider trading charges. He is serving 11 years in prison, the longest sentence ever given in an insider trading case.
If Gupta is convicted, he faces up to 105 years in prison. He has pleaded not guilty.
Government spokeswoman Jerika Richardson declined to comment.
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