Goldman Deals: On Tape

A Goldman Sachs director disclosed to Raj Rajaratnam in 2008 that the investment bank was weighing an acquisition of either Wachovia or American International Group, according to a wiretapped telephone conversation that was played in court on Tuesday.

Mr. Rajaratnam, co-founder of the hedge fund Galleon Group, is on trial in Federal District Court in Manhattan on insider trading charges. On Tuesday, a defense lawyer began his cross-examination of a main government witness who has pleaded guilty to passing illegal stock tips to Mr. Rajaratnam.

But the most striking testimony came when prosecutors played a recording of a July 25, 2008, call between Mr. Rajaratnam and Rajat K. Gupta, then a Goldman director.

Mr. Rajaratnam, working from his Greenwich, Conn., home that day, told Mr. Gupta that he was meeting with Gary D. Cohn, the president of Goldman, later in the week. He asked Mr. Gupta about a rumor that Goldman might look to buy a commercial bank.

“This was a big discussion at a board meeting,” Mr. Gupta said. He explained that the Goldman board was divided over whether buying a commercial bank made sense because it was a low-return business. Goldman was bearish on commercial banks, he said, but the board was “opportunistic” and if Wachovia “was a good deal they’d go and buy Wachovia.”

Mr. Gupta also said that the board was weighing the acquisition of an insurance business, including A.I.G. “Yes, A.I.G. was in the discussion mix,” he said. Ultimately, Mr. Gupta concluded, “I would be extremely surprised” if there was “anything imminent.”

The detailed discussion of Goldman’s board meeting is the first time the government has disclosed specific comments made by Mr. Gupta to Mr. Rajaratnam about the bank’s internal dealings while a director. The exchange also reveals the thinking of Goldman’s board at a time when the bank was struggling as the financial crisis grew.

A Goldman spokesman declined to comment.

The Securities and Exchange Commission brought a civil action this month against Mr. Gupta, who once ran the consulting firm McKinsey & Company, accusing him of passing illegal tips to Mr. Rajaratnam about Goldman and Procter & Gamble, where he also served as a director. The case recounted phone calls between the two men, but provided no detail of their content.

Mr. Gupta has not been charged criminally. Gary Naftalis, a lawyer for Mr. Gupta, has said that the S.E.C.’s accusations are baseless.

The government concluded its direct examination Tuesday morning of Anil Kumar, a former senior executive at McKinsey, who has pleaded guilty to giving Mr. Rajaratnam confidential information about his clients.

Mr. Kumar testified that Mr. Gupta had numerous business dealings with Mr. Rajaratnam, including a partnership in a fund managed by Mr. Rajaratnam called Voyager that was unrelated to Galleon and that collapsed during the financial crisis.

During the cross-examination, John Dowd, Mr. Rajaratnam’s lawyer, attacked Mr. Kumar’s credibility, depicting him as a cooperating witness in the government’s back pocket and a cheat who did not pay his taxes.

“When you got caught, you pinned it all on Raj, didn’t you?” Mr. Dowd said.

Mr. Kumar, who spoke in a soft, scholarly tone during the direct examination, became combative. He raised his voice several octaves and repeatedly sparred with Mr. Dowd, shooting back clipped, rapid-fire retorts and mocking his questions with derisive laughter.

Mr. Dowd focused on the plan Mr. Kumar had set up in 2003 to receive secret payments from Mr. Rajaratnam and then invest them in Galleon. To avoid detection by McKinsey, Mr. Kumar established a shell company and opened a Swiss bank account in the company’s name. Those payments were then redirected to an offshore Galleon account controlled by Mr. Kumar but opened in the name of his housekeeper.

Mr. Kumar told the jury that he did all this at the direction of Mr. Rajaratnam, who paid him more than $2 million.

On Monday, Mr. Dowd called Mr. Kumar’s maneuvers “a monstrous lie.”

Mr. Kumar said, “I am not sure what you mean by ‘monstrous,’ I obeyed the instructions of Raj Rajaratnam, the managing partner of Galleon.”