A former board member for Goldman Sachs and Procter & Gamble on trial on insider trading charges and two men and a woman already criminally convicted were on a list of 10 "important people" who could interrupt a billionaire hedge fund boss just before trading days ended, the trial's first witness testified Tuesday.
The revelation of a notebook page containing the list was an early surprise in the 2-day-old trial of Rajat Gupta, a Harvard-educated executive who became a heavyweight in corporate America after a childhood in India that left him an orphaned teenager.
It emerged through the testimony of Caryn Eisenberg, a former assistant to Galleon Group hedge funds founder Raj Rajaratnam. Rajaratnam is serving 11 years in prison _ the longest sentence ever given in an insider trading case _ after he was convicted at trial. The government said he made as much as $75 million in illegal profits through tips from friends at public companies and in the financial industry.
Gupta is accused of giving Rajaratnam tips about Goldman Sachs and P&G before public announcements of news likely to move the stocks, such as earnings results or, in one instance, the investment by Warren Buffet of $5 billion in Goldman at the height of the 2008 financial crisis when the investment bank was struggling.
He has pleaded not guilty, and his lawyer told jurors in his opening statement that prosecutors would fail to produce any direct evidence to prove charges of conspiracy to commit securities fraud and securities fraud.
Testimony about the list preceded Eisenberg's description of an urgent phone call that she passed along to Rajaratnam just before prosecutors say he directed his employees to buy $43 million in Goldman stock in September 2008, just hours before Buffet's investment was announced publically. Because it was only minutes before the markets closed, brokers could only complete $27 million in trades. The government said Rajaratnam made $1 million on the trade.
Eisenberg testified that she recognized the voice from her "important people" list. Prosecutors introduced into evidence documents that showed the phone call originated from the phone line of Gupta's assistant. She said the man "said it was urgent and he needed to speak to Raj." After the call, Rajaratnam called a trader into his office and the man left shortly afterwards and went to his desk, where Eisenberg heard him say "buy Goldman Sachs" several times, she said.
After the call, Rajaratnam's demeanor changed, Eisenberg said.
"He was smiling more," she recalled. She said she remembered the day in particular because the Buffet investment in Goldman Sachs was the talk of the office the next day.
Eisenberg said she found the list last week when Gupta's lawyers asked her to search her records for evidence. The list was written in Eisenberg's first week at Galleon under the heading: "Important People," she testified.
Gupta's name was second on the list, under a misspelled reference to Rajiv Goel, the former director of strategic investments at Intel Capital, the investment arm of Intel Corp. Goel pleaded guilty and testified at Rajaratnam's trial. Fifth on the list was financial consultant and admitted tipster Anil Kumar, who also testified against Rajaratnam, his former classmate at the University of Pennsylvania's prestigious Wharton School.
Kumar last year testified that he and Goel vacationed with Rajaratnam and that Rajaratnam once paid him a secret $1 million bonus for a tip that earned $20 million in 2006.
Eisenberg said the list was eventually expanded to about 10 names, including Danielle Chiesi. Chiesi, a former hedge fund trader, is serving 2 1/2 years in prison after pleading guilty to insider trading charges.
On cross-examination, Eisenberg recalled that another name on the "important people" list was a Goldman Sachs employee who spoke regularly with Rajaratnam.
The effort by a defense lawyer to raise the possibility that Rajaratnam received a tip about Goldman from someone other than Gupta faltered when Eisenberg said she was sure it wasn't him "because when he called, he always said hello to me and was extremely friendly."
The defense did gain support for its argument that the friendship between Gupta and Rajaratnam was damaged when prosecutors say illegal tips were made because Eisenberg testified that Rajaratnam sometimes directed her to lie to Gupta, telling him he was not in the office when he was.
Still, prosecutors noted, Gupta was so trusted by Rajaratnam that he had his own security pass to Galleon's offices.