Goldman Sachs' former Indian-American director violated the firm's code of conduct by allegedly disclosing details from a 2008 board meeting to hedge fund tycoon Raj Rajaratnam, the company CEO Lloyd Blankfein has testified.
Gupta has denied wrongdoing, and has not been charged criminally. So far, he has only been named in an administrative civil proceeding by the US regulator Securities and Exchange Commission (SEC).
Testifying before a New York court on Wednesday in the biggest insider trading trial in the US in decades, Blankfein said Gupta violated the firm's confidentiality in discussing the possibility that it might acquire a commercial bank like Wachovia or an insurance company like AIG.
A prosecutor played for Blankfein a recording of a July 29, 2008 phone conversation-secretly recorded by the FBI, in which Gupta tells Sri Lankan born Galleon hedge fund founder Rajaratnam that the Goldman board had discussed such a possibility.
"Did Rajat Gupta violate Goldman Sachs' confidentiality policy?" he asked, referring to the conversation.
"Uh, uh, yes," Blankfein replied. "We didn't want information about our company going outside until the appropriate time."
But lead defence attorney John Dowd noted on cross-examination that there had been considerable public speculation earlier in 2008 about investment banks merging with commercial banks or insurance companies.
Questioned later by the prosecution about media reports, Blankfein said there is a difference between speculation and confidential board discussions.
"Speculation is people trying to guess what a company is going to do. The board knows what the company is going to do," he said.
But he conceded under questioning by Dowd that the firm's code of conduct does not address whether confidential information is the same as "material inside information," the legal standard for insider trading. Prosecutors say Gupta also tipped Rajaratnam to other key developments in 2008, including a $5-billion investment in Goldman by Warren Buffett's Berkshire Hathaway Berkshire.
Meanwhile, Gupta, invoked his Fifth Amendment right not to incriminate himself when the SEC wanted to question him, a prosecutor said.