On Tape, Galleon Founder Told of Possible Goldman Deals

By PETER LATTMAN MARCH 15, 2011 2:20 PMMarch 15, 2011 2:20 pm
Rajat K. GuptaEric Piermont/Agence France-Presse
Getty ImagesRajat K. Gupta
8:51 p.m. | Updated
A Goldman Sachs director disclosed to Raj Rajaratnam in 2008 that the investment
bank was weighing an acquisition of either Wachovia or American International G
roup, according to a wiretapped telephone conversation that was played in court
on Tuesday.
Mr. Rajaratnam, co-founder of the hedge fund Galleon Group, is on trial in Feder
al District Court in Manhattan on insider trading charges. On Tuesday, a defense
lawyer began his cross-examination of a main government witness who has pleaded
guilty to passing illegal stock tips to Mr. Rajaratnam.
But the most striking testimony came when prosecutors played a recording of a Ju
ly 25, 2008, call between Mr. Rajaratnam and Rajat K. Gupta, then a Goldman dire
ctor.
Mr. Rajaratnam, working from his Greenwich, Conn., home that day, told Mr. Gupta
that he was meeting with Gary D. Cohn, the president of Goldman, later in the w
eek. He asked Mr. Gupta about a rumor that Goldman might look to buy a commercia
l bank.
The Galleon networkAzam Ahmed and Guilbert Gates/The New York Times Click on the
above graphic to get a visual overview of the Galleon information network
This was a big discussion at a board meeting, Mr. Gupta said. He explained that th
e Goldman board was divided over whether buying a commercial bank made sense bec
ause it was a low-return business. Goldman was bearish on commercial banks, he s
aid, but the board was opportunistic and if Wachovia was a good deal they d go and bu
y Wachovia.
Mr. Gupta also said that the board was weighing the acquisition of an insurance
business, including A.I.G. Yes, A.I.G. was in the discussion mix, he said. Ultimat
ely, Mr. Gupta concluded, I would be extremely surprised if there was anything immi
nent.
The detailed discussion of Goldman s board meeting is the first time the governmen
t has disclosed specific comments made by Mr. Gupta to Mr. Rajaratnam about the
bank s internal dealings while a director. The exchange also reveals the thinking
of Goldman s board at a time when the bank was struggling as the financial crisis
grew.
A Goldman spokesman declined to comment.
The Securities and Exchange Commission brought a civil action this month against
Mr. Gupta, who once ran the consulting firm McKinsey & Company, accusing him of
passing illegal tips to Mr. Rajaratnam about Goldman and Procter & Gamble, wher
e he also served as a director. The case recounted phone calls between the two m
en, but provided no detail of their content.
Mr. Gupta has not been charged criminally. Gary Naftalis, a lawyer for Mr. Gupta
, has said that the S.E.C. s accusations are baseless.
The government concluded its direct examination Tuesday morning of Anil Kumar, a
former senior executive at McKinsey, who has pleaded guilty to giving Mr. Rajar
atnam confidential information about his clients.
Mr. Kumar testified that Mr. Gupta had numerous business dealings with Mr. Rajar
atnam, including a partnership in a fund managed by Mr. Rajaratnam called Voyage

r that was unrelated to Galleon and that collapsed during the financial crisis.
During the cross-examination, John Dowd, Mr. Rajaratnam s lawyer, attacked Mr. Kum
ar s credibility, depicting him as a cooperating witness in the government s back po
cket and a cheat who did not pay his taxes.
When you got caught, you pinned it all on Raj, didn t you? Mr. Dowd said.
Mr. Kumar, who spoke in a soft, scholarly tone during the direct examination, be
came combative. He raised his voice several octaves and repeatedly sparred with
Mr. Dowd, shooting back clipped, rapid-fire retorts and mocking his questions wi
th derisive laughter.
Mr. Dowd focused on the plan Mr. Kumar had set up in 2003 to receive secret paym
ents from Mr. Rajaratnam and then invest them in Galleon. To avoid detection by
McKinsey, Mr. Kumar established a shell company and opened a Swiss bank account
in the company s name. Those payments were then redirected to an offshore Galleon
account controlled by Mr. Kumar but opened in the name of his housekeeper.
Mr. Kumar told the jury that he did all this at the direction of Mr. Rajaratnam,
who paid him more than $2 million.
On Monday, Mr. Dowd called Mr. Kumar s maneuvers a monstrous lie.
I m not sure what you mean by monstrous,
Mr. Kumar said.
Raj Rajaratnam, the managing partner of Galleon.

I obeyed the instructions of