Hedge Fund Galleon Group founder smiled when the stock market closed after receiving a phone call that spurred his hedge fund to hurriedly buy Goldman Sachs
Hedge Fund Manager Raj Rajaratam’s PA Caryn Eisenberg was first witness at the insider trading trial of Gupta.
Eisenberg, a prosecution witness, testified that she received an ‘urgent’ telephone call at around 3:54 p.m. on Sept. 23, 2008, that she put through to Rajaratnam in his adjacent office. While she didn’t remember the identity of the caller, she said it was a male voice and someone who was on a list of “important people” provided to her. She said the call was from a Connecticut phone number of Gupta’s assistant.
Hedge Funder Rajaratnam took the call, then spoke to his partner, Gary Rosenbach, who repeatedly urged Galleon traders to “buy Goldman Sachs,” she said. A second witness, Ananth Muniyappa, then a Galleon trader, said he and Rosenbach rushed to buy a total of 267,000 shares of Goldman Sachs at about $124 a share.
After the market’s close, Goldman Sachs announced a $5 billion investment in the bank by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) (A) Goldman Sachs shares rose on the investment, generating a profit of almost $1 million for Galleon, prosecutors say. Assistant U.S. Attorney Reed Brodsky asked Eisenberg about Rajaratnam’s demeanor after the trade.
“He was smiling more,” she testified, adding that the investment stood out in her mind because everyone at Galleon was discussing it the next day. “It was memorable because Warren Buffett is a very important and influential man, and he didn’t typically make investments in companies like Goldman Sachs.”
Muniyappa told jurors that he rushed to fill hedge fund manager Rajaratnam’s order to buy Goldman Sachs stock. “He wanted it executed by the end of the day, definitely,” he testified.
Gupta is accused of passing insider tips to hedge fund manager Rajaratnam in a conspiracy that ran from 2007 to January 2009. Rajaratnam is serving an 11-year prison sentence for insider trading.
Prosecutors say Gupta, 63, gave Rajaratnam material, nonpublic information about New York-based Goldman Sachs and Cincinnati-based Procter & Gamble Co. (PG) (PG), the world’s largest consumer-products company. Gupta, who was a director at both companies, is charged with conspiracy and securities fraud.
Yesterday, prosecutors began presenting evidence about the Buffett investment and what they say was the close relationship between Rajaratnam and Gupta. Eisenberg also testified about Rajaratnam’s high-stakes fantasy football league.
In her testimony, Eisenberg said Gupta was considered a “good friend” of Rajaratnam’s who telephoned Galleon’s offices “many times” and would sometimes make unannounced visits.
She said that when she began working at Galleon’s offices in January 2008, Gupta was one of five “important people” whose calls should be put through to Rajaratnam even if they called at the start or end of a trading day.
Eisenberg said she was told not to disturb Rajaratnam with any calls “unless they were people on a list I was given.” Reading from a notebook and a list she kept, she said Gupta was identified on the documents as “a good friend — chairman and CEO of McKinsey & Co.”
The others were Rajiv Goel, then an Intel Corp. managing director who later pleaded guilty to insider trading; Anil Kumar, a partner then at McKinsey who subsequently pleaded guilty to insider trading; Parag Saxena, CEO of New Silk Route LLC, an investment firm co-founded by Gupta; and Stanley Druckenmiller, who runs Duquesne Capital Management LLC, she said.
Call During Day
Kumar and Goel — who was nicknamed “Peter Pan” on the “important people” list — both testified against Rajaratnam at his trial last year. Saxena and Druckenmiller, who didn’t immediately return e-mails or telephone calls, haven’t been accused of wrongdoing.
During the almost two years that Eisenberg worked at Galleon, the list of important people grew to about 10 names, she said. One person added to the roster was Danielle Chiesi, then an analyst at New Castle Funds LLC, Eisenberg said. Chiesi is serving a prison term after pleading guilty to insider trading.
Another name added to the list was David Loeb, she said. Loeb, Goldman Sachs’s head of Asia equity sales in New York and a managing director, hasn’t been accused of wrongdoing.
“He would call throughout the day, but not as frequently as some of the other callers,” Eisenberg said of Loeb.
Gupta’s lawyers acknowledge that Gupta and Rajaratnam were friends. They say the relationship soured after Rajaratnam lost $10 million that Gupta invested in an entity called Voyager Capital Partners.
Because some of the evidence against Gupta will come from remarks Rajaratnam made on phone calls wiretapped by prosecutors, defense lawyer David Frankel used his cross- examination of Eisenberg to show that Rajaratnam was a liar.
The lawyer had Eisenberg testify that Rajaratnam sometimes directed her to lie to Gupta about his availability when Gupta called or made unannounced visits to the office.
“Lying, as in saying he wasn’t in the office,” Eisenberg said, adding, “he may have snuck out of the building to avoid him.”
Frankel showed jurors excerpts of a Feb. 29, 2008, instant message exchange between Eisenberg and Anita Teglasi, another Rajaratnam assistant.
“Raj made me lie to Rajat,” Eisenberg wrote. “He doesn’t want to see him.”
Frankel also showed an itinerary of a trip Rajaratnam took with a group of other fund managers to the Borgata hotel and casino in Atlantic City, New Jersey, in February 2008, where about six people were transported there via two helicopters.
Participants included Druckenmiller; David Heller, then the co-head of Goldman Sachs’s securities division; Michael Daffey, also a Goldman Sachs executive; and Paul Tudor Jones, chairman of hedge fund Tudor Investment Corp., she said. The two sides disagreed over whether Goldman Sachs president Gary Cohn made the trip, which came at the end of the group’s fantasy football season.
Proceeds from the league were intended for charity, she said.
‘On the List?’
“Rajat Gupta wasn’t on the list?” Frankel asked.
“No,” Eisenberg said.
Michael DuVally, a spokesman for Goldman Sachs, declined to comment on testimony about Loeb, Cohn, Heller or Daffey. Heller, Cohn and Daffey didn’t return e-mails sent after business hours.
Shawn Pattison, a spokesman for Jones, declined to comment.
The trial will resume today. Among the government’s witnesses in the case will be Byron Trott, who was vice chairman of Goldman Sachs, and Stephen Pierce, a managing director at the bank, according to court papers.
The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).
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