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Rajaratnam swindled, cheated me: Gupta told Ajit Jain in 2009

Former McKinsey head Rajat Gupta, upon losing $10 million in an investment fund, had told “close friend” Ajit Jain, chief of Berkshire Hathaway’s reinsurance business, he had been “swindled and cheated” by hedge fund founder Raj Rajaratnam.

India-born Jain, seen as the successor to Berkshire Hathaway’s billionaire investor chief Warren Buffett, testified through video deposition as a defence witness in the insider trading trial of Gupta yesterday.

Gupta’s lawyer, Gary Naftalis, showed the jury Jain’s video deposition, wherein he answered questions posed by him.

In the testimony, which came after the prosecution rested its case, Jain talks about a conversation Gupta had had with him in January 2009 at a restaurant in Stamford, Connecticut. “He (Gupta) told me, as best I can remember, that he had a $10-million investment with Rajaratnam in some venture and he had been gypped, swindled or cheated by Raj,” Jain said. “He lost his entire investment with Rajaratnam.”

“So, it wasn’t just an issue of bad investment?” Naftalis asked. “Right,” Jain said. In response to a question by Naftalis, Jain said it was “unusual” for Gupta to share information about his investments with him. Gupta’s lawyers have argued he could not have shared secret boardroom information about Goldman Sachs and Proctor and Gamble with Rajaratnam as the two had had a fall-out over Gupta losing his investment.

Anil Kumar, a former McKinsey partner, had earlier testified that Gupta felt Rajaratnam had taken his money behind his back and was being “evasive” about his $10-million investment.

Jain began his testimony by saying he was born and educated in India and received his MBA from Harvard Business School. He had gone to work at McKinsey and said Gupta had been “on the fast track” at the consulting giant, which, at that time, had only a handful of Indian employees. Gupta then “ended up running McKinsey,” Jain said. He said he used to meet Gupta on various social occasions and described his relationship with him as “completely social”.

Jain is among the most important defence witnesses in trial of Gupta, who has been accused of leaking to Rajaratnam information about a $5-billion investment Jain’s boss, Buffett, had lined up in Goldman Sachs at the height of the financial crisis in 2008. The government has also accused Gupta of passing to Rajaratnam tips involving Goldman Sachs earnings in the first quarter of 2007 and fourth quarter of 2008. Prosecutors say Gupta told Rajaratnam the Cincinnati- based Proctor and Gamble planned to sell its Folgers Coffee unit to J M Smucker. Jain’s deposition is expected to continue on Monday.

Before showing Jain’s testimony, Naftalis brought on as witness, Richard Feachem, a former under secretary general of the United Nations and a former executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria. Feachem said he had known Gupta since 2002 as the two worked together in the healthcare field and described him as a “man of exceptional honesty and truthfulness”.

Prosecutors also played several FBI wiretaps of voicemail messages exchanged between Gupta and Rajaratnam in 2008. In some of these, Gupta said he would be “calling to catch up whenever you get a chance, bye.”

On Friday, prosecutors wrapped up their case with the testimony of their star witness — Goldman Sachs CEO Lloyd Blankfein.

According to Blankfein, discussions at board meetings were confidential and he did not authorise Gupta to share information discussed at such meetings. However, he said some senior executives had briefed outside analysts in July 2008 on the possibility of Goldman acquiring a bank. “Items your senior management discloses to analysts are no longer confidential?” Naftalis asked. “Yes,” Blankfein responded.

Blankfein also said board members had, probably, been briefed about Goldman’s quarterly losses as early as October 13.

The prosecution has alleged Gupta gave Rajaratnam information about the losses after he participated in an October 23, 2008 board meeting. Naftalis also presented several news articles in which analysts had written about the likelihood of Goldman acquiring a commercial bank days before it was discussed in the board meeting.

Naftalis has said Rajaratnam had other sources which could have leaked information to him.

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