March 27 (Reuters) - Former Goldman Sachs Group Inc director
Rajat Gupta lost his bid to suppress wiretap evidence at his
upcoming criminal trial on charges that he leaked boardroom
secrets to hedge fund founder Raj Rajaratnam.
But Gupta also won a key victory as U.S. District Judge Jed
Rakoff in Manhattan directed federal prosecutors to review U.S.
Securities and Exchange Commission notes from a separate civil
fraud case and turn over to the defense any evidence that might
show Gupta's innocence.
A former global head of the McKinsey & Co consulting firm,
Gupta is the most prominent corporate executive charged in the
U.S. government's sweeping investigation of illicit trading on
Wall Street. His criminal trial is set for May 21.
Prosecutors say Gupta tipped his friend Rajaratnam between
March 2007 and January 2009 about developments at Goldman and
Procter & Gamble Co, where Gupta was also a director.
Rakoff also ruled on Tuesday that Gupta's lawyers could
depose Goldman Chief Executive Lloyd Blankfein and ask him about
meetings he held with federal investigators about the case.
Blankfein was already expected to be called as a government
witness at Gupta's trial.
Among the tips that Gupta is accused of providing to
Rajaratnam was Goldman's winning a surprise $5 billion injection
from Warren Buffett's Berkshire Hathaway Inc at the height of
the 2008 financial crisis.
Prosecutors said Gupta later told Rajaratnam that Goldman
was on pace to post what became its first quarterly loss as a
public company.
Gary Naftalis, a lawyer for Gupta, declined to comment on
the Tuesday rulings, as did Goldman spokesman Michael DuVally.
DETECTING ILLEGAL TRADES
Rakoff ruled that the government could use wiretapped
conversations at Gupta's trial, saying that "insider trading
cannot often be detected, let along successfully prosecuted,
without the aid of wiretaps."
The conversations include recordings that also were played
at Rajaratnam's insider-trading trial before U.S. District Judge
Richard Holwell.
Rajaratnam, founder of the Galleon Group, was convicted last
May and is serving an 11-year prison term.
Rakoff also denied Gupta's bid to dismiss some criminal
counts, which the defendant claimed were vague or duplicative.
Prosecutors charged Gupta with five counts of securities
fraud and one count of conspiracy, but did not accuse him of
directly profiting from suspect trades.
Gupta was global head of McKinsey for nine years until he
retired in 2007. He was also a director of AMR Corp, the parent
of American Airlines.
DISCLOSURES REQUIRED
Rakoff directed the SEC to turn over notes on 44 witness
interviews it conducted jointly with the U.S. Attorney's Office,
and for that office to then disclose any evidence that might
help Gupta's defense.
This evidence is known as "Brady" material, after a 1963
U.S. Supreme Court case.
Rakoff said Gupta showed a "substantial need" for such
evidence, and rejected prosecutors' contention that they need
not review the SEC memoranda because the probes by the Justice
Department and the SEC were separate.
"Where, as here, the overwhelming bulk of witness interviews
were jointly conducted, there can be no doubt that exculpatory
disclosures made during these joint interviews that are
reflected in the notes or memoranda of either agency must be
disclosed to the defense," Rakoff wrote.
In the ruling on Blankfein, Rakoff gave Gupta's lawyers two
hours to depose Blankfein about his meetings to prepare for an
earlier deposition, held on Feb 24.
The judge rejected the SEC contentions that this information
could not be disclosed, or that Gupta's request was "a mere
naked attempt to obtain the SEC's and the (U.S. Attorney's)
legal opinions and strategy."
The case are U.S. v. Gupta, U.S. District Court, Southern
District of New York, No. 11-cr-00907; and SEC v. Gupta et al in
the same court, No. 11-07566.
For the U.S.: Reed Brodsky and Richard Tarlowe of the U.S.
Attorney's Office.
For Gupta: Alan Friedman, David Frankel, Gary Maftalis and
Robin Wilcox of Kramer Levin Naftalis & Frankel.
(Reporting by Jonathan Stempel; Additional reporting by Ben
Berkowitz and Lauren Tara LaCapra)