Legal News

Galleon Tapes Tie Rajaratnam to Alleged Tips on Goldman Sachs

By Michael Rothfeld

Jurors in the trial of Raj Rajaratnam heard the most direct evidence Wednesday tying the Galleon Group founder to inside tips on Goldman Sachs that regulators say he received from Rajat Gupta, a former director at the investment bank.

“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,”  Rajaratnam (pictured at right) said on a secretly-recorded tape played at the hedge fund manager’s trial. “The Street has them making $2.50.”

As recounted here by WSJ’s Chad Bray and Susan Pulliam, wiretaps involving the allegedly secret tips on Goldman were the highlight of Wednesday’s testimony at the three-week-old trial, in which prosecutors seemed to be winding gradually toward the end of their case.  A New York Times account of the day’s testimony is here.

The two Goldman-related calls are connected to tips that the SEC, in a civil administrative proceeding launched on March 1, says Rajaratnam got from Gupta, who contends he has done nothing wrong. The government has cited calls Gupta made to Rajaratnam immediately after Gupta received important information about Goldman, and subsequent trades made by Galleon. While those calls weren’t apparently taped, other ones in which Rajaratnam allegedly discussed the Goldman information were.

In one such talk, on Oct. 24, 2008, he discusses with David Lau, a Galleon portfolio manager in Singapore, that Goldman was unexpectedly losing money. “Really,” Lau responds.

Rajaratnam says the board member he’d heard this from “was telling me was that uh, Goldman, the quarter’s pretty bad.”

“They have zero revenues because their trading revenues are offset by asset losses, and to date they have lost $2 per share,” Rajaratnam says on the call. “I don’t think that’s built into Goldman Sachs’ stock price.”

In another tape, from  Sept. 24, 2008, Rajaratnam is heard telling Ian Horowitz, a trader at Galleon, about a “big drama” at Goldman shortly before the markets closed the day before. The government says  Gupta had tipped Rajaratnam that Warren Buffett’s Berkshire Hathaway Inc. was planning to make a $5 billion investment in Goldman.

“I got a call at 3:58, right?” Rajaratnam says in the Sept. 24 call.

“Yeah,” Horowitz says.

“Saying something good might happen to Goldman. Right?” Rajaratnam says. He allegedly placed an order for millions of dollars in Goldman stock in the two minutes before stock trading closed in New York on Sept. 23, prosecutors said.

Full post as published by Law Blog - WSJ.com on March 31, 2011 (boomark / email).