Ex-Goldman Sachs Director Surrenders To FBI

Ex-Goldman Sachs Director Rajat Gupta surrendered to the FBI Wednesday on criminal charges of leaking inside information to the founder of the Galleon Group hedge fund. Michele Norris talks to Ilya Marritz for more.

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MELISSA BLOCK, HOST:

And to New York now, where a prominent businessman surrendered to authorities today to face charges of insider trading. Federal prosecutors say Rajat Gupta passed important company secrets about Goldman Sachs and Procter and Gamble to a friend and business partner who ran a hedge fund. Gupta served on the boards of both companies and pleaded not guilty earlier today.

MICHELE NORRIS, HOST:

This is just the latest twist in a wide-ranging Justice Department investigation. And reporter Ilya Marritz from member station WNYC in New York joins us now for more on this. Ilya, tell us a bit more about Rajat Gupta and what he allegedly did.

ILYA MARRITZ, BYLINE: Well, Rajat Gupta is one of the best connected businessmen in the country. He was born in India, but he made his career here in the United States. He was managing director of McKinsey and Company from 1994 to 2007. And in that role, he gave advice to captains of industry, people like Jeffrey Immelt at General Electric.

Later on, he served on the boards of Procter and Gamble, who make household products; and Goldman Sachs, who make financial products. And it was in that role as director of two major publically traded companies that Gupta allegedly passed these secrets to his friend, Raj Rajaratnam, who ran the New York hedge fund. And then, Rajaratnam traded on that information, prosecutors say.

Earlier this month, Rajaratnam was sentenced to an 11-year prison term for insider trading. Gupta wasn't his only alleged source in that case, but he was by far the most prominent. And I should also mention that Gupta faces a separate civil action by the Securities and Exchange Commission that was also filed today.

NORRIS: What kind of evidence do they have to support these allegations?

MARRITZ: Prosecutors say that they will show that Gupta passed secrets to his friend and business associate Raj Rajaratnam dozens of times in 2008 and 2009. Probably the most interesting single example is from September 21, 2008. On that day, the board of Goldman Sachs was holding a special meeting. Remember, this was about a week after Lehman Brothers had failed. And on this day, the board was considering a secret offer by Warren Buffett to invest $5 billion in Goldman. The board voted later that day to approve the offer. The announcement was made after the stock exchange had closed.

Prosecutors say, 16 seconds after that meeting ended - it was conducted by phone call - Gupta placed a call to his friend Raj Rajaratnam. The two spoke very briefly. And then Rajaratnam immediately placed an order to purchase $27 million worth of Goldman Sachs shares. The next day, Rajaratnam dumped the stock and he made an easy profit of almost a million dollars.

NORRIS: Do we have any sense of how Mr. Gupta's legal team plans to mount their defense?

MARRITZ: Well, a former prosecutor I spoke with, Robert Mintz, from the firm of McCarter and English in Newark, said getting a judge to disqualify that wire tap evidence of third parties is job number one for Gupta's attorneys.

ROBERT MINTZ: Defense is going to argue that those tapes are inadmissible because they're essentially hearsay. In other words, the defense does not have the ability to cross-examine the participants in that conversation to gauge the veracity of the statements made that allegedly implicate Mr. Gupta.

MARRITZ: Notice the wire taps aren't admitted, proving the case is going to be a lot harder. The evidence that prosecutors are left with is basically circumstantial. It's those call logs. It's the trading records. And defense can point to that and say, fine, but where's the proof that this man passed these secrets?

NORRIS: Ilya, thank you very much.

MARRITZ: Thank you.

NORRIS: That's reporter Ilya Marritz from member station WNYC in New York.

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