Witness Ties Ex-Goldman Sachs Board Member to Hedge Fund Boss

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Federal prosecutors called their first witness in the insider trading case against former Goldman Sachs board member Rajat Gupta on Tuesday.

Gupta is accused of tipping off his friend, Raj Rajaratnam, a hedge fund manager, that Goldman Sachs received an offer from Warren Buffett's Berkshire Hathaway to invest $5 billion in the banking giant in 2008.

Raj Rajartnam’s secretary at the time was Caryn Eisenberg. Wearing a black blazer and a gold pendant, she appeared composed as recalled events from 2008, often answering questions with just a few words.

She testified before a federal jury that she received a phone call from Gupta, a member of the board of Goldman Sachs, on the afternoon of September 23, 2008. After the call, Eisenberg said, Mr. Rajaratnam's mood was visibly improved.

"He was smiling more," Eisenberg said.

Within minutes, Rajaratnam's traders at the Galleon Group were being urged by managing partner Gary Rosenbach to buy Goldman Sachs, Eisenberg said. There were just a few minutes left before the end of the trading day at 4 p.m.

Eisenberg said she didn't know the content of Rajaratnam's conversation with Mr. Gupta — the door to her boss' office was closed. But government lawyers hope the circumstantial evidence from this phone call, and several others, will lead the jury to a guilty verdict.

Gupta, who also sat on the board of Procter and Gamble, and who is a former managing director of McKinsey & Co., is charged with five counts of fraud and one count of conspiracy. He's also fighting to preserve a reputation built up over the decades since he emigrated to America from America as a young man, and started climbing the corporate ladder. Wearing a dark suit and red tie in the courtroom, he was accompanied by a bevy of family and supporters who sat a few feet behind him.

His lawyers are challenging prosecutors to show motive: what reason would a wealthy and accomplished man have for risking so much by passing secrets? They also are trying to show that the friendship between the two men had already deteriorated by the time Gupta allegedly passed tips to Rajaratnam. Instant messages were produced showing that Rajaratnam tried to avoid Gupta.

Rajaratnam is now serving an 11-year sentence for insider trading, after being convicted last year.

Gupta has pleaded not guilty to conspiracy and securities fraud charges that carry a potential for more than 100 years in prison.

With the Associated Press