Prosecutors are trying to prevent Raj Rajaratnam's defense team from trying to discredit Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein as a trial witness with questions about government investigations into the bank.
Raj Rajaratnam, the Sri Lankan-born founder of the hedge fund Galleon, has become the focus of the most high-profile insider-trading case in a generation. The Wall Street Journal explains the history of the man at the top of an alleged tech-stock secrets food chain
The government has subpoenaed Mr. Blankfein and may call him as a witness as early as this week, according to letters written to prosecutors and a judge by lawyers for the Galleon Group founder in his insider-trading trial. The defense team has argued to the judge overseeing the case that it should be able to probe Mr. Blankfein about whether he is testifying "in the hopes of obtaining a better resolution" in ongoing government investigations.
Above, Goldman Sachs CEO lloyd Blankfein testifies before Senate Finance Committee regarding accusations of illegal trading deals that ultimately contributed to the financial meltdown of September 8, 2008.
Above, Goldman Sachs CEO lloyd Blankfein holds press conference after his eleven hour testimony before the Senate Finance Committee hearing.
Federal prosecutors in Manhattan said in a filing made public Tuesday evening that Mr. Blankfein would testify about the service of former Goldman director Rajat Gupta, and what duties of confidentiality Mr. Gupta owed the bank.
Mr. Gupta was accused this month in a civil proceeding by the Securities Exchange Commission of tipping Mr. Rajaratnam about non-public information he received as a Goldman director. Mr. Gupta has denied wrongdoing and sued the SEC, accusing it of violating his constitutional rights.
The defense team on March 7 subpoenaed Goldman for information about investigations into the firm. Goldman responded with a copy of its annual report detailing about 20 pending legal matters, including some preliminary government probes. Mr. Rajaratnam's lawyers have also asked prosecutors for similar information.
But prosecutors, in a letter Monday to U.S. District Judge Richard Holwell, said open investigations of Goldman Sachs "are of no relevance" to the trial and have no bearing on Mr. Blankfein's credibility.
"Rajaratnam might suggest, for example, that because Goldman Sachs is tied up in many different legal proceedings, the firm—and by extension its CEO, Mr. Blankfein—is not to be trusted," prosecutors wrote in the letter. A Goldman spokesman declined to comment.
Mr. Rajaratnam's lawyers said in their own letter to the judge that they didn't intend to ask about specific proceedings and hadn't planned to suggest that open investigations mean Mr. Blankfein can't be trusted.
The government also told the judge that Mr. Blankfein shouldn't be cross-examined about Goldman's possible role in the 2008 financial crisis because the trial "is simply not the appropriate forum to delve into the highly complex causes" of the crisis and recession.
Mr. Rajaratnam's team responded that it "has never suggested that Goldman Sachs is somehow responsible for the 2008 financial crisis."
COMMENTARY: I have been covering the SEC's investigation of Goldman Sachs, and most notably their CEO Lloyd Blankfein concerning securities fraud and insider trading allegations. Goldman Sachs pleaded no contest and paid a $550 million fine, the largest fine ever, but nobody went to jail.
The half of the puzzle is Raj Rajaratnam, the managing director of Galleon Management, LLC, a New York hedgefund, who has been accussed off insider trading involving the sale of OTC mortgage-backed derivatives brokered by Goldman Sachs.
Robert Khuzami, Director of Enforcement at the SEC, speaks at a press conference where charges where announced against hedge fund managers, Fortune 500 executives, and a management consulting director for participating in insider trading schemes that resulted in more than $20 million in illegal profits, at the US Attorney's office on October 16, 2009 in New York City. The defendants in the case include Raj Rajaratnam, the managing director of Galleon Management, LLC, and a portfolio manager for Galleon Technology Offshore, Ltd.; Danielle Chiesi, an employee of New Castle Funds, LLC, formerly the equity hedge fund group of Bear Stearns Asset Management, Inc.; Mark Kurland, a top executive at New Castle; Rajiv Goel, a Director in Strategic Investments at Intel Capital; Anil Kumar, a director at McKinsey & Company, Inc,; and Robert Moffat, Senior Vice President and Group Executive at IBM.
Above is a blow-up (Click to enlarge) of the chart Mr. Khuzami is pointing to. The chart clearly shows the trail of illegal insider trading informationi from various sources that flowed to Galleon Management, LLC, the hedge fund managed by Raj Rajaratnam. Below Mr. Rajaratnam is escorted by U.S. federal marshalls, after a bench warrant was issued for his arrest for insider trading. Kind of reminds you of the scene from the film "Wall Street" when Bud Fox (played by Charlie Sheen) is arrested by federal marshals.
On October 19, 2009 the SEC released the following press release titled "SEC Charges Billionaire Hedge Fund Manager Raj Rajaratnam with Insider Trading".
Mary L. Schapiro, SEC Chairman said:
“This complaint describes a web of fraud that has been unraveled".
Robert Khuzami, Director of the SEC's Division of Envorcement said:
"What we have uncovered in the trading activities of Raj Rajaratnam is that the secret of his success is not genius trading strategies. He is not the astute study of company fundamentals or marketplace trends that he is widely thought to be. Raj Rajaratnam is not a master of the universe, but rather a master of the rolodex. He cultivated a network of high-ranking corporate executives and insiders, and then tapped into this ring to obtain confidential details about quarterly earnings and takeover activity.”
There are over 100 SEC documents pertaining to Mr. Rajaratman's case. You can find them all by searching under "Raj Rajaratman" HERE. Incredible.
Here's a picture of Raj Rajaratman estate in Greenwich, Connecticut (courtesy of Google Maps)
I can hardly wait to see Mr. Rajaratman get convicted and sent to prison for insider trading. And, this is just the beginning, there are literally dozens of other firms and individuals going to be tried over insider trading and securities fraud that led to the financial meltdown.
It's appalling that Goldman Sachs CEO Lloyd Blankfein, the facilitator of these atrocious insider trading schemes was able to avoid prison.
Courtesy of an article dated March 23, 2011 appearing in The Wall Street Journal