Goldman chief called to testify in Galleon case

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US prosecutors intend to call Lloyd Blankfein, the head of Goldman Sachs, as a witness in the insider trading trial of Raj Rajaratnam, according to a letter sent to the judge hearing the case.

The prosecutors, whose letter was dated March 21, expect Mr Blankfein to testify about Goldman board meetings in 2008 relating to earnings and a $5bn investment the bank received from Warren Buffett.

Prosecutors have alleged Rajat Gupta, then a Goldman director, passed inside information to Mr Rajaratnam just minutes after the board meetings concluded. Mr Gupta was sued by the Securities and Exchange for allegedly tipping Mr Rajaratnam but denies wrongdoing. He has not been charged criminally.

In a letter sent to US District Court Judge Richard Holwell, prosecutors asked the judge to preclude the defence from questioning Mr Blankfein about other federal investigations involving the bank and whether Goldman was responsible for the financial crisis.

Goldman paid $550m to settle a Securities and Exchange Commission lawsuit last year related to its sale of a debt product. It is involved in more than 20 other “legal proceedings” according to the firm’s regulatory filings.

According to the letter, prosecutors said they had not notified Goldman or Mr Blankfein that either is the target or subject of a criminal investigation. The defence, the letter said, may suggest Mr Blankfein is altering his testimony for favourable treatment. The government says that is not a risk since Goldman has not been told it is the target of a probe. “Goldman Sachs is not on trial in this matter,” prosecutors wrote.

“Many individuals, including potentially the jurors, have strong feelings about the crisis,” the letter said, implying that allowing such questions could prejudice the jury.

Mr Blankfein had previously agreed to testify, but the government had not confirmed until now that it would call him. Mr Blankfein will be on the hot seat in one of the highest profile insider trading cases in a generation.

It is unusual for sitting chief executives to testify. The last time Mr Blankfein publicly testified was in a marathon session before a congressional committee about the financial crisis and debt products the bank structured.

Mr Rajaratnam’s lawyer subpoenaed Goldman for information on March 15, after the trial began and following SEC charges against Mr Gupta. A lawyer for Mr Rajaratnam called the SEC’s lawsuit an attempt to smear a witness who could testify on behalf of his client.

The judge said he would listen to arguments on Wednesday before the trial resumed and then render a decision.

In a response, lawyers for Mr Rajaratnam said whether Mr Blankfein was testifying in hopes of obtaining a better resolution from investigation was “fair subject” for cross examination. One of the lawyers said he never suggested Goldman was responsible for the financial crisis.

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