Goldman Chief Cross Examined in Insider Trading Trial

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Lloyd Blankfein, CEO of Goldman Sachs, was cross examined in a Manhattan courtroom Friday. It was his third day of testimony in the federal trial of Rajat Gupta, a prominent businessman and former member of the investment bank's board.

Gupta is charged with passing confidential information about Goldman Sachs and Procter & Gamble (where he was also on the board) to a hedge fund manager who placed stock trades based on those tips. He has pleaded not guilty to the charges.

In earlier testimony, Blankfein, a government witness, told the jury that much of the information he routinely shared with board members could affect Goldman Sachs' stock price and was not intended to be shared with investors or the public.

Prosecutors have focused in particular on the sensitive period between the end of a company's financial quarter, and the release of quarterly earnings figures, usually a few weeks later.

Prosecutors have produced volumes of evidence suggesting Gupta spoke by phone with hedge fund manager, Raj Rajaratnam, shortly before earnings reports.

But under cross examination, Blankfein acknowledged that he did not always communicate Goldman Sachs earnings information directly to Gupta.

"I have no specific recall of a specific conversation," Blankfein said, when Gupta attorney Gary Naftalis asked him about Goldman's worse-than-forecast earnings in October 2008.

While prosecutors' evidence is largely circumstantial, a wiretap of a July 2008 conversation between Gupta and Rajaratnam shows Gupta tamping down rumors that Goldman might purchase a commercial bank. The company was probably not interested in making an acquisition, Gupta said.

If this information was confidential, it would help the government's case. The matter was discussed the previous month at a Goldman Sachs board meeting in St. Petersburg, Russia.

But on Friday, Gupta's attorneys produced reports by Merrill Lynch and Oppenheimer stock analysts showing that senior Goldman Sachs leaders were discussing the likelihood of a bank acquisition around the same time the FBI taped Gupta's conversation with Rajaratnam.

Last year, Rajaratnam began an 11-year prison sentence, the harshest penalty ever given in an insider trading case.