Goldman CEO cited by NY lawyers in wiretap flap

Attorneys for a former Goldman Sachs board member accused of insider trading say recent testimony by Goldman's chief executive supports their bid to eliminate the only wiretap recording of their client that relates to claims that he shared secrets with a hedge fund boss.

The lawyers say a February deposition by Goldman Sachs chief executive Lloyd Blankfein in a related civil case helps prove that defendant Rajat Gupta was telling hedge fund founder Raj Rajaratnam about already public information rather than divulging illegal secrets in their July 2008 phone conversation. Gupta is a former board member for Goldman Sachs and Procter & Gamble Co.

They say Blankfein's testimony in an enforcement action by the Securities and Exchange Commission proves that comments Gupta made to Rajaratnam regarding whether Goldman might buy a commercial bank was consistent with what the company was already saying publicly.

They quoted Blankfein as saying that whatever Goldman executives said to analysts and others "certainly was not confidential or material."

Called as a government witness, Blankfein testified at Rajaratnam's trial last year that it appeared that Gupta, of Westport, Conn., had broken board rules in his chat with Rajaratnam.

He testified then that board members were expected to observe a strict code of confidentiality on possible deals that could move markets once they're announced. Blankfein is expected to be called as a government witness at Gupta's trial this month.

The telephone recording between Gupta and Rajaratnam lasted 24 minutes. For his conviction, Rajaratnam is serving an 11-year prison sentence, the longest ever given in an insider trading case. Gupta's trial is scheduled to start in two weeks.

In papers filed in U.S. District Court in Manhattan late Monday, the defense also sought to exclude 26 recorded phone conversations that it insists are irrelevant to charges of conspiracy and securities fraud faced by Gupta.

"It appears that the government seeks to reprise the Rajaratnam trial in order to shore up its weak circumstantial case against Mr. Gupta, resorting to evidence about other companies and other alleged conspiracies," the lawyers wrote.

The lawyers called the phone conversations "extremely prejudicial" and likely to focus jurors on conspiracies unrelated to the charges against Gupta.

Ellen Davis, a spokeswoman for prosecutors, said she had no comment.

In court papers filed late Monday, prosecutors asked U.S. District Judge Jed Rakoff to compel the disclosure of certain attorney-client communications if Gupta claims he considered suing Rajaratnam in 2008 over the Galleon Group founder's handling of a joint investment with Gupta known as Voyager Capital Partners. They also sought to strike any evidence or argument that the government's motives in prosecuting Gupta were improper or that he has been selectively prosecuted.