Goldman CEO: Board member broke rules Beethoven

Goldman CEO: Board member broke rules

NEW YORK (Reuters) – Goldman Sachs Group Inc chief Lloyd Blankfein testified that a former director at Wall Street’s most powerful bank violated confidentiality by leaking boardroom secrets to hedge fund manager Raj Rajaratnam.

Blankfein was called to testify by prosecutors in Manhattan federal court about Goldman’s results in 2008, and a crucial investment that September by billionaire Warren Buffett at the height of the financial crisis — secrets that prosecutors said were given to Rajaratnam.

The Goldman CEO’s appearance on the witness stand for more than three hours on Wednesday intensified the focus on what is already the largest Wall Street insider trading case since the prosecutions of speculator Ivan Boesky and junk bond financier Michael Milken in the 1980s. Rajaratnam, a one-time billionaire, could face 20 years in prison if convicted.

Blankfein replied “yes” when prosecutor Andrew Michaelson asked whether disclosure of boardroom talks by former director Rajat Gupta went against the bank’s confidentiality policies. The CEO gave his answer after a recording was played of an FBI wiretap in which Gupta and Rajaratnam discussed possible Goldman deal activity.

Rajaratnam, 53, looked pensive as Blankfein spoke. Following the end of morning testimony, Blankfein shook Rajaratnam’s hand after jurors had left the courtroom.

Blankfein called Galleon a “prominent client” for Goldman but said he did not regularly communicate with the hedge fund. Goldman has not been accused of wrongdoing.

Prosecutors say Rajaratnam, the founder of Galleon Group, illegally made $45 million from 2003 to 2009 in stock trades based on tips from insiders, including highly placed executives in corporate America.

KEEPING INFORMATION PRIVATE

Blankfein, 56, told jurors that Gupta broke Goldman policies by telling Rajaratnam about the board’s discussion in June 2008 of a possible merger with the commercial bank Wachovia Corp or an insurance company.

Asked whether American International Group Inc was under discussion, Blankfein said, “I don’t have a specific recollection, but it probably would have been.”

Prosecutors played an FBI tap of Rajaratnam’s mobile phone from July 29, 2008, in which Gupta and Rajaratnam discussed Goldman, Wachovia and AIG.

But during cross-examination, Rajaratnam lawyer John Dowd showed Blankfein press reports from June 24 and July 11 of 2008 suggesting that Goldman might buy a commercial bank.

Rajaratnam’s defense is that his trades were based on his own research and publicly available information. He has vowed to clear his name at trial.

Blankfein also said it would have been confidential information that Goldman on September 23, 2008, would get a $5 billion injection from Buffett’s Berkshire Hathaway Inc, given that investors would view it as a “very positive sign.”

He also said it would have been confidential to disclose the following month that Goldman was on its way to a surprise fourth-quarter loss, its first as a public company.