On May 25, the fifth day of the trial, the government called to the witness stand Goldman board member William George. Just weeks before the trial started, he was substituted for John Bryan, the director who was closest to Gupta, as the Goldman board witness. On May 4, Brodsky, the lead prosecutor in the Gupta trial, sent Naftalis and his team of lawyers a letter via email advising that in a meeting on April 30, Bryan said he did not recall “one way or another” if he learned Goldman was losing nearly $2 a share in a board posting call on October 23, 2008. The previous summer in a videoconference interview, Bryan, who lives in Chicago, had indicated to Brodsky that he remembered Blankfein saying Goldman was losing $2 a share in the October call. His lapse in memory—or perhaps his reluctance to testify against his good friend Gupta—posed a big problem for the prosecution. If the government put Bryan on the stand, the defense could grill him on the inconsistencies between his first and second interviews with the government.
To avoid that, the prosecution decided to put George on the witness stand, even though it knew that he could not testify to hearing Blankfein tell the board that Goldman was going to lose $2 a share. The $2 number was important because it dovetailed with the comment Rajaratnam made the next day to his lieutenant in Singapore. But the best recollection George had of the October 23, 2008, board call was simply that Goldman was going to lose money.
By Friday, June 1, the ninth day of the trial, the strains of the taxing case began to take their toll on the Gupta family. The day kicked off with a discussion outside the presence of the jury of whether to admit the notes of Heather Webster, a J.P. Morgan private banker who met with the Guptas in April 2008. Webster’s notes, taken during a meeting in the study of Gupta’s waterfront home in Westport, offered a rare peek into the family’s wealth. At the time, Gupta and his wife had assets of $134 million—a net worth of $84 million, an irrevocable trust of $38.5 million, and $11.2 million in cash and liquid assets. Under the section in her notes regarding estate planning, Webster had noted that the Guptas wanted to give 80 percent of their money to charity.
The prosecution sought to admit Webster’s notes because in her financial review of the Guptas she had asked for an update on his sources of income. In the notes she took at the time, she wrote, he was “Chairman, Galleon International, $1.3 billion, 15 percent owner, invests in long/short equity Asia, entitled to performance fees.” For the prosecution, which was seeking to show the jury that Gupta was in a position to benefit from the insider tips he gave Rajaratnam—an important element of proving insider trading—Webster’s notes were critical. Gupta may not have received cash in briefcases like Marty Siegel had, but he had a vested interest in Galleon’s success.
Naftalis argued vehemently that Webster’s notes should not be admitted because it would leave the jury with a misleading impression of Gupta’s role at Galleon. He had an informal arrangement with the hedge fund, and he and Rajaratnam had never reached a signed agreement about Gupta becoming chairman of Galleon International. “Nothing was agreed and nothing ever happened,” said Naftalis. The only part of the notes Naftalis would have admitted was the reference to Gupta’s desire to give most of his money to charity.
At one point, Judge Rakoff, who stepped in to elicit testimony from Webster, asked the prosecutor Brodsky whether Gupta’s arrangement to be chairman and work for Galleon International happened or not.
“It is both,” replied Brodsky.
“You think it was like science fiction? It was and it wasn’t,” Judge Rakoff asked.
Brodsky said Gupta was negotiating for a 20 percent stake in Galleon International—more than promised by Rajaratnam. The matter had not been settled. Judge Rakoff ultimately ruled that the notes could be admitted, but he disallowed testimony on Gupta’s philanthropic plans, saying, “The annals of white-collar crime in this district are filled with people who wanted to make themselves respected, powerful members of society by giving to charity.”
In one of his rare displays of emotion, Gupta shook his head, clasped his hands in resignation, and looked up. Anita Gupta, flanked by two of her daughters, bowed her head and then left the courtroom.
That afternoon, Anil Kumar, Gupta’s friend and longtime protégé, took the stand. A pro by now at testifying for the government, he came to court without his lawyer, Greg Morvillo. (In December 2011, Greg’s father, Robert, passed away.) As Kumar walked into the well, his head bowed, Gupta’s eyes followed him. He raised his eyebrows and looked back at his wife, who was sitting in the first row of the spectators’ gallery. Kumar was a star witness for the government in the Rajaratnam case. But how would he perform in the case against his old boss, Gupta?
As the courtroom deputy swore Kumar in and he spelled his name, his voice cracked. During a sidebar later, his discomfort showed. He looked everywhere—at the judge’s bench, under the computer monitor before him—everywhere but at Gupta, who was seated directly in front of him. Gupta stared straight ahead, avoiding eye contact with Kumar.
After rehashing some of the testimony he had served up at the Rajaratnam trial, Kumar testified about the business dealings between Rajaratnam and Gupta, particularly how they came to start New Silk Route. He told the jury how in mid- to late October 2008 he heard from Gupta that he had lost his $10 million investment in Voyager. Brodsky was trying to establish the timing of Gupta’s dispute with Rajaratnam over Voyager. If Kumar was to be believed, the dispute came after the insider tips on Goldman and Procter & Gamble.
In his questioning of Kumar on Monday, June 4, defense lawyer Naftalis tried to show that the statements Kumar had made in previous interviews with the government were consistent with Gupta’s defense.
“Did you tell the government that Mr. Gupta felt that Mr. Rajaratnam had not kept a straight book?” asked Naftalis.
“Yes, sir,” responded Kumar.
During the middle of the lunch break, a black Mercedes-Benz SUV with blacked-out windows pulled up outside the entrance of the federal courthouse. A swarm of photographers and cameramen rushed to the car. Everyone was expecting Goldman’s chief executive, Lloyd Blankfein, who was scheduled to testify that afternoon at the Gupta trial. But when the door opened, a scrawny leg protruded. A bouncer appeared and shouted: “Stand back, stand back.”
Emerging from the SUV was Paris Hilton, dressed in a blue suit, blue stockings, and her famous outsized white sunglasses—not that she needed them amid the cloudy skies. She had arrived for a settlement conference involving a dispute with an Italian lingerie company. Before she strode into the courthouse, she smiled and posed for photos.
Blankfein, meanwhile, dressed more conservatively in a white shirt, blue suit, and red tie, was already upstairs waiting to testify. He had permission to come into the courthouse via its underground parking garage. After he was sworn in, Judge Rakoff couldn’t resist the opportunity to question Blankfein. In asking Blankfein some routine biographical questions, Brodsky skipped over his brief career as a lawyer some thirty years before. Judge Rakoff jumped in to correct the omission.
“I’m sure you want to hide the fact that this witness is a lawyer,” said Judge Rakoff. Then he turned to Blankfein and asked, “Did you go to law school?”
Blankfein said he had worked for a law firm for four and a half years as a corporate tax lawyer.
“Then you got religion,” said Judge Rakoff.
“It was a mutual decision,” quipped Blankfein.
The Goldman chief executive was the star of the government’s case. And his wattage again ensured a packed courtroom. But much of what Blankfein said was a replay of the testimony he’d delivered the previous year at the Rajaratnam trial. During one sidebar between the attorneys and the judge, he grinned at the jury, craned his head to see what the lawyers were discussing, and fidgeted, looking everywhere but directly ahead at Gupta.
The former Goldman board member seemed equally uncomfortable during Blankfein’s testimony. He often glanced back at his wife, Anita, and during one sidebar, he even got up from
his chair and leaned over to speak to his wife. She stretched out her hand in a show of solidarity.
Blankfein offered tutorials to the jury on the basics of corporate finance. Asked what it meant when Goldman posted record profits one quarter, he said, “That means it’s better than it has ever been before.” The one area where he shed new light was recalling his conversations with Gupta about taking up an advisory position at the private equity firm Kohlberg Kravis Roberts & Co.
Blankfein testified that when Gupta told him that he was thinking of accepting the KKR role, Blankfein said it “presented certain conflicts” to Goldman. Gupta disagreed, and the two were set to part ways. A draft press release was prepared announcing Gupta’s resignation from the Goldman board and celebrating his tenure on it. To mark his time as a board member, Goldman gave him some cuff links.
But unexpected events intervened. In September 2008, when Lehman Brothers “quite famously went bankrupt,” Blankfein said he asked Gupta to withdraw his resignation and remain on the board. With the markets in turmoil, it didn’t seem like a lot of private equity business was going to get done, and the conflict didn’t “loom as large,” said Blankfein. Gupta remained on the Goldman board and took up the advisory position at KKR.
At one point, Brodsky asked Blankfein if he knew how much Gupta was going to earn at KKR. The defense objected, but just as Judge Rakoff said, “You may answer yes or no,” Blankfein uttered “Five,” clearly meaning $5 million. Gupta’s jaw dropped.
Blankfein’s testimony had to be spread over the course of a week because he had an important engagement midweek: his daughter was graduating from Fieldston School, a leafy private school north of Manhattan. Blankfein told Judge Rakoff that it would be hard to get to the courthouse after the celebratory lunch he planned to attend in Yonkers.
“I live in Yonkers, so I know,” said Judge Rakoff.
“I am going to a restaurant in Yonkers which you probably know,” said Blankfein.
“If it’s the one I am thinking of, I can’t afford it,” retorted Judge Rakoff. (The proprietor of the restaurant told Blankfein that Judge Rakoff is a regular.)
Naftalis, in his cross-examination of Blankfein, tried to show that Gupta was so loyal to Goldman that when Blankfein asked him to stay in the midst of the financial crisis, he readily agreed, doing Goldman a favor. “It wasn’t going to be helpful to have a director resign from the firm if it was going to be construed that there was a problem at the firm, which there wasn’t,” conceded Blankfein.
It was clear from the start that Naftalis’s cross-examination of Blankfein was going to be testy. Naftalis asked Blankfein if he was number one at Goldman Sachs.
“No. 1 is not an official title,” said Blankfein, smiling. “Chairman and CEO” was his title. Then Naftalis asked if Blankfein succeeded someone called Henry Paulson. “His name is Hank Paulson,” said the wisecracking Blankfein.
Naftalis, trying to undercut the prosecution’s contention that Gupta leaked information on October 23, 2008, about Goldman’s fourth-quarter loss, showed an exhibit of a Wall Street Journal story that morning saying Goldman was planning to cut 10 percent of its workforce. Naftalis suggested that was the reason Goldman’s stock started to slide. But Blankfein said he did not remember the downsizing article. Naftalis would seize on Blankfein’s remark to unleash an unusual attack on the Goldman chief executive in his closing arguments.
When Blankfein left the courtroom, he acknowledged Gupta with a smile. Gupta didn’t return it.
On Friday, June 8, after calling twenty witnesses over twelve days, the government rested its case. Although the defense had submitted the names of a number of character witnesses it planned to call to testify on Gupta’s behalf, there was still no word on whether Gupta himself would take the stand. Since the trial started, Naftalis had held it out as a possibility. After the jury left for the weekend, Naftalis said it was “highly likely” that Gupta would testify the following week. It was a risky gambit. Most lawyers advise a criminal defendant not to take the stand because it can open up the person to wide-ranging questioning from prosecutors. Gupta wanted to explain to the jury his version of events, but by Sunday, he and his lawyers decided against it, a move he would later come to second-guess.
Instead, his eldest daughter, Geetanjali, an accomplished Gupta in her own right—she is a graduate of both Harvard Law School and Harvard Business School, has a bachelor’s in applied math from Harvard College, and works for the Harvard endowment—told his story. At 4:30 p.m. on Monday, June 11, the fifteenth day of the trial, Geetanjali, wearing a simple gray dress and jacket and black high-heeled shoes, her long hair sensibly pulled back, walked calmly to the witness stand. In a forthright and compelling fashion, she testified about the events around September 20, 2008. It was an important weekend for her. On September 20, she celebrated her thirtieth birthday, and the next day was her mother’s birthday. Geetanjali told the rapt jury that her father was very upset that weekend about an investment he had with Rajaratnam. “He was running his hand through his hair, which he does when he is stressed,” she recalled.
By Thanksgiving, when the family gathered at her parents’ house in Westport, her father was “quite different from his normal self…He was quite depressed, withdrawn and not himself.” The failed investment was well known within the family. Geetanjali Gupta’s testimony was critical for the defense, as it sought to show that at the time of the alleged insider tipping, Gupta’s relationship with Rajaratnam had so deteriorated that he had no incentive to give him inside information.
Like her father, Geetanjali came off as poised and articulate and her testimony credible.
On cross-examination, prosecutor Reed Brodsky, known for his theatrics in the courtroom, lowered his voice to a barely audible whisper and asked her just two questions:
“Do you love your father?”
“Yes,” she replied.
“Would you do anything for your father?”
“I would do anything for my father, but I would not lie, though, on the stand,” she replied.
After the jury left the courtroom, Geetanjali walked toward her father, who was seated at the defense table. The two embraced. For the first time since the trial had started a month earlier, Gupta was overtaken with emotion: his eyes were moist with tears.
Just before Geetanjali took the stand, Suprotik Basu, a cocksure thirty-four-year-old United Nations executive working on a project to eradicate malaria, testified. When asked how he met Gupta, Basu said that in May 2007 he got an “urgent call” from a colleague in New York who said there was a businessman who “wanted to end all childhood deaths from malaria by 2025.”
A prosecutor sprang up and objected. Judge Rakoff agreed and the testimony was struck.
Basu then testified that he was meeting with Gupta on the afternoon of September 23, 2008, the day of the Buffett investment in Goldman. He traveled with Gupta for a dinner they were attending that evening with the Ethiopian health minister. He had no conversations about Goldman or Warren Buffett with Gupta. “We were focused on our meetings…to close our malaria funding gap,” said Basu.
When asked by the prosecutor Brodsky, Basu said he was not in the room when Gupta took part in the Goldman board call or when a call was placed from a McKinsey conference room, which Gupta was using that day, to Rajaratnam’s direct work line. However, Basu sought to bolster the defense team’s argument that Gupta’s call to Rajaratnam was simply a matter of habit: he was always returning calls between engagements.
“My picture of him is with a earpiece in his ear constantly returning phone calls between meetings,” said Basu.
The defense case took just two and a half days. That was in large part because Judge Rakoff limited the number of character witnesses Gupta could call. And he rejected a major thrust of the defense: Rajaratnam wasn’t tipped by Gupta but by one of Goldman’s own, David Loeb, the head of Asia equity sales. After Geetanjali Gupta finished testifying, lawyers for Gupta worked late into the evening
trying to persuade Judge Rakoff to allow them to play two wiretapped phone conversations between Rajaratnam and David Loeb in August 2008. In the calls, Loeb is said to have passed information about Intel and Apple to Rajaratnam. Judge Rakoff ruled against allowing the Loeb tapes in.
On the morning of Tuesday, June 12, Goldman’s outside lawyer Steve Peikin got an email from Loeb’s attorney. Loeb was headed to the courthouse because the defense planned to call him as a witness. “Are you calling Loeb?” Peikin asked Naftalis. Keeping his cards close to the vest, Naftalis didn’t answer. During the morning break, Peikin broached the issue with prosecutor Brodsky who didn’t know either. But the next time Peikin saw Naftalis, he seemed annoyed and asked him: “Are you a government stooge?” The relationship between Goldman and Gupta was so frayed by now that the normally affable Naftalis incorrectly perceived Peikin’s move as a way to telegraph the defense’s strategy to the government.
Just before the defense rested its case, it played a tape of Rajaratnam speaking to one of his lieutenants in which he appeared to confirm Gupta’s allegation that he had cheated in Voyager Capital Partners, the investment vehicle the two men had invested in together.
“When you take leverage you, you know. My problem is, I’m a big boy. I hope Rajat is a big boy. You know?” Rajaratnam told Galleon portfolio manager Sanjay Santhanam in a phone call on October 2, 2008. “And then I didn’t, I, I, I didn’t tell him that I took that equity out, right.” The tape bolstered earlier evidence presented by the defense showing an internal Galleon document that appeared to indicate that Rajaratnam took $25.2 million from Voyager in December 2007.
On June 13, the prosecution and the defense concluded the trial much as they had begun, by offering two polar opposite pictures of Gupta. In his closing argument, assistant US attorney Richard Tarlowe walked through the evidence piece by piece. He said that in the last ten minutes of the trading day on September 23, 2008, there was only one call to Rajaratnam’s direct line, and that call was from Gupta.
The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund Page 42
