Federal prosecutors gave a boost to the defense of a former Goldman Sachs board member Thursday after revealing that the billionaire hedge fund boss he is accused of tipping was receiving secrets about two public companies from a Goldman Sachs employee.
Ex-board member Rajat Gupta's lawyer, Gary P. Naftalis, told a judge he was notified by prosecutors at 11:06 p.m. Wednesday about an investigation in Los Angeles of a current Goldman Sachs employee who is believed to have given inside information to Raj Rajaratnam, the founder of the Galleon Group of hedge funds.
The revelation comes after the defense was notified several weeks ago that a Goldman Sachs executive was giving inside information to Rajaratnam about Apple Inc. and Intel Corp.
Naftalis did not comment about the allegations that multiple people were accused of giving tips to Rajaratnam, but he was smiling afterward as reporters suggested that it would be increasingly hard for a jury to determine exactly where the Sri Lankan-born one-time Wall Street heavyweight got secrets about public companies. Prosecutors also declined to comment.
Rajaratnam is serving an 11-year prison sentence, the longest ever handed out in an insider trading case, after a jury convicted him of charges that he made more than $70 million illegally by acting on tips he received from a large collection of friends at public companies and fellow hedge fund traders.
Gupta, who also served on the board of Procter & Gamble Co., was not in court Thursday when Assistant U.S. Attorney Reed Brodsky handed a letter to U.S. District Judge Jed Rakoff describing basic facts about the California case. Gupta is scheduled to go on trial May 21. Brodsky asked that the letter be filed under seal and that the individual's name not be revealed, along with the names of the public companies he allegedly provided information about.
Gupta of Westport, Conn., is free on $10 million bail. He is accused of feeding inside information from board meetings to Rajaratnam.
Naftalis has said the defense will show jurors that Gupta and Rajaratnam had a falling out in 2008 and 2009, and thus it did not make sense that Gupta would have offered inside information.
In all, more than two dozen people were charged in the Rajaratnam probe. All except Gupta have pleaded guilty or been convicted at trial.
Rakoff did not comment on Thursday's revelation by the government, except to note how unusual it was that another prosecutor's office was investigating.
"I, of course, am disappointed to learn that there's a case involving insider trading of any kind whatsoever under the sun that is not centered in the Southern District of New York, but so be it," he said.