Goldman CEO recounts boardroom leak

source: AFP

Blankfein said former Goldman director Rajat Gupta broke the firm's internal regulations in 2008 by giving hedge fund manager Raj Rajaratnam an inside take on discussions about the bank's possible acquisitions.

Rajaratnam, founder of the Galleon Group, is accused by the government of creating a corrupt network of informants, including Gupta, to rack up millions of dollars in fraudulent profits based on illegal market tip-offs.

The New York federal court was played a wiretap telephone recording of Rajaratnam asking Gupta about rumors that Goldman might buy a commercial bank, possibly Wachovia, or an insurance company.

"This was a big discussion at the board meeting," Gupta said during the 2008 call, which was secretly taped by the FBI.

"It was a divided discussion," he said, adding that he would be "extremely surprised if anything is imminent."

Blankfein, wearing a somber dark suit and blue tie, was asked if Gupta had broken the company's confidentiality policies.

"Yes," Blankfein replied.

Rajaratnam's lawyers argued their client was just doing his job by trying to clarify information already circulating in the press.

However Blankfein, called to the stand by government prosecutors, said there was a difference between discussions inside and outside the boardroom.

"Speculation is people trying to guess what a company will do. The board knows what a company will do," he said.

Gupta has denied wrongdoing and his lawyer says the allegations of collusion with Rajaratnam "are totally baseless."

The appearance of Blankfein in court provided jurors with a rare look inside one of Wall Street's most secretive and powerful firms.

The case is being eagerly watched by traders and prosecutors partly for its theater, but particularly for new guidelines on what constitutes insider trading.

At the start of the trial, assistant US attorney Jonathan Streeter said Rajaratnam "cheated."

But defense attorney John Dowd countered that the Sri Lankan-born 53-year-old was nothing more than a brilliant entrepreneur whose Galleon hedge fund used legal, public information and "the best research in the business."

The government case rests largely on wire-tap conversations allegedly showing Rajaratnam cultivating illegal information, and the testimony of former associates and colleagues who have already been convicted and are cooperating with the government.

One of the central accusations in the government case is that Gupta tipped off Rajaratnam about an imminent $5 billion dollar investment in Goldman by legendary investor Warren Buffett in 2008, just when recession had shaken Wall Street to its foundations. The Buffett investment sharply boosted Goldman shares.

Gupta, who was also a Procter & Gamble director, is accused by the Securities and Exchange Commission of giving Rajaratnam "information about the quarterly earnings at both firms," as well as Buffett's investment.

Gupta's lawyer, Gary Naftalis, said the SEC civil charges are baseless and that "Mr Gupta has done nothing wrong... There is no allegation that Mr Gupta traded in any of these securities or share din any profits as part of any quid pro quo."

In cross-examination of Blankfein, Dowd sought to show the jury just how much Goldman valued Gupta. Dowd also asked Blankfein whether board members at Goldman were meant to talk to major clients -- which included Galleon -- about market news.

"I talk to a lot of them," Blankfein said. "I talk to a lot of different kinds of clients. Somebody should have a relationship with our clients."

However, Blankfein said that Gupta was not allowed to discuss Goldman's internal business.

"Was he authorized to talk to clients about the Goldman board's strategic discussions?" prosecutor Andrew Michaelson asked.

"No," Blankfein replied.

At the helm of a company with more than $80 billion market capitalization for almost six years, Blankfein is seen by the wider public with a mixture of awe and dislike.

But the diminutive and humorous CEO showed the jury of fellow New Yorkers that he may not be so different after all. Asked during cross-examination whether a share price under discussion had gone up by 37 percent, Blankfein provoked laughter when he admitted he couldn't do the quick mental arithmetic.

"I'm not that good in my head," he said.