Goldman CEO says Rajat Gupta broke boardroom rules

Goldman Sachs Group Inc chief Lloyd Blankfein told jurors at Raj Rajaratnam's insider trading trial that former Goldman director Rajat Gupta violated confidentiality in discussions with the accused hedge fund manager.

Blankfein was called to testify by prosecutors in a Manhattan federal court about Goldman's results in 2008, and a crucial investment that September by billionaire Warren Buffett at the height of the financial crisis.

His appearance intensified the focus on what is already the largest US insider trading case in two decades.

The Goldman chief executive officer replied "Yes" several times in response to prosecutor Andrew Michaelson's questions as to whether disclosure of boardroom talks would violate the bank's confidentiality policies.

Dressed in a dark suit, white shirt and blue tie, Blankfein walked swiftly to the witness stand in the tense, crowded court.

He at first hesitated in giving his name, saying "Lloyd, uh, Blankfein," before spelling it for a court reporter.

At the end of the morning phase of his testimony, Blankfein shook Rajaratnam's hand. Blankfein testified that Rajaratnam's Galleon Group had been a "prominent client" for Goldman, but he did not regularly communicate with the hedge fund.

Prosecutors have accused Rajaratnam, a one-time billionaire, of illegally making $45 million from 2003 to 2009 based on tips from insiders, some of whom were highly placed executives in corporate America.

Sri Lanka-born Rajaratnam's defence is that his trades were based on his own research and publicly available information. He has vowed to clear his name at the trial.

Blankfein told jurors that former director Rajat Gupta violated Goldman confidentiality policies by revealing to Rajaratnam the board's June 2008 discussion of a possible merger with Wachovia Corp or an insurance company.

Asked whether American International Group Inc was the insurer, he said, "I don't have a specific recollection, but it probably would have been."

Prosecutors played a July 29, 2008, tap by the Federal Bureau of Investigation of Rajaratnam's mobile phone in which Gupta and Rajaratnam discussed Goldman, Wachovia and AIG.

Blankfein also said it would have been confidential information that Goldman would on September 23, 2008, get a $5 billion investment from Buffett's Berkshire Hathaway Inc, and that Goldman the following month was on its way to a surprise fourth-quarter loss.

"We generally make money," Blankfein said, prompting laughter in the court from jurors and others.

Buffett under wraps
The Securities and Exchange Commission (SEC), the market regulator in the United States, accused Gupta of tipping Rajaratnam about Goldman's results and Buffett's investment.

Altogether, Rajaratnam made more than $17.5 million in illicit gains from trades on the Goldman information, the SEC contends.

Gary Naftalis, a lawyer for Gupta, declined to comment on Wednesday, and repeated his earlier comments that the SEC allegations against his client are baseless.

Gupta, a former worldwide managing director at consulting firm McKinsey & Co, has sued the SEC over the case.

The SEC said Gupta had at least two phone calls with Rajaratnam just before Goldman announced Berkshire's investment, including one just after Gupta disconnected from a phone link to the board meeting where Goldman approved it.

Blankfein indicated that the Buffett investment in particular would need to be kept confidential, given Buffett's reputation as a "very, very shrewd and successful" investor.

"He would make us, however safe we were, that much safer," Blankfein said. "The fact that he was investing in us would be a very positive sign to the market."

Blankfein testified that it is important for Goldman directors not to disclose private discussions about the publicly traded bank's business.

"We don't want information about our company to get out until it's appropriate," he said.

Under cross-examination by Rajaratnam's lawyer John Dowd, Blankfein said he tried to talk Gupta out of quitting the board on September 12, 2008, not wanting to project instability to the market.

But by the time Gupta's decision not to stand for re-election became known in March 2010, things had changed.

"I knew there were questions about Rajat's behaviour, that's how I would say it," Blankfein said.

Goldman has not been accused of wrongdoing. Blankfein, 56, has been Goldman's chief executive since June 2006.

The case is US v Rajaratnam, US district court, Southern District of New York, No 09-01184.