Defense Scores Some Points in Gupta Trial

MANHATTAN (CN) - A top executive for Smucker's testified Thursday about how his company's confidential plans to acquire Folgers coffee dripped out to the public, but could not connect alleged inside trader Rajat Gupta to the disclosure.

Gupta, a former executive for Goldman Sachs and Procter & Gamble, is accused of passing inside information to Raj Rajaratnam, the Galleon hedge fund billionaire sentencedlast year to 11 years in prison and fined$156.6 million.

For four days, prosecutors have tried to connect Gupta to some of Rajaratnam's most profitable tips, including Smucker's acquisition of Folgers and Warren Buffett's $5 billion investment in Goldman Sachs at the height of the financial crisis.

Mark Belgya, Smucker's chief financial officer, testified Thursday morning about his company's code-named Project Moon, the secretive plan to have Folgers coffee join Smucker's jam, Crisco, and Jif peanut butter as a fourth key brand.

The $3.3 billion acquisition would increase J.M. Smucker's' staff by 33 percent, Belgya said. He said the board formally approved the deal on June 2, 2008, slating the announcement for later in the week.

The next day, however, after the stock exchange's closing bell rang, the Wall Street Journal reported that the acquisition was imminent - before the company had announced it.

Belgya said the apparent leak forced them to reschedule their announcement.

As cross-examination began, Gupta's hefty defense attorney Gary Naftalis told Belgya that he was a fan of his company's products.

"I think sometimes I've eaten too many of your jams," Naftalis said.

Naftalis then grilled Belgya about Gupta's connection to earlier testimony.

Belgya agreed that he never met Gupta and had no firsthand knowledge of the allegations against him. He acknowledged that the inner circle that knew about Project Moon was quite wide.

He said the deal's advisers included Banc of America Securities LLC, Morgan Stanley & Co., Blackstone Group, William Blair & Co. LLC, Calfee Halter & Griswold LLP, Weil Gotshal & Manges LLP, Jones Day and Cadwalader Wickersham & Taft LLP.

Defense attorneys made some headway in persuading the judge how to define the standard that prosecutors must reach to prove Gupta's guilt. On Thursday afternoon, U.S. District Judge Jed Rakoff gave the jury preliminary instructionsthat stated, in part: "If a director of a company knowingly and intentionally discloses material inside information to an outsider in anticipation of receiving at least some modest benefit in return and in anticipation that the outsider will then trade in the stock of the company on the basis of that information, and the outsider then so trades, the director has committed the crime of insider trading."

Long before trial began, defense attorneys contended that Gupta gained no benefit from the alleged tips, and Rakoff seemed persuaded by defense attorneys' arguments that the "modest benefit" will have been defined further when the jury's final charges are given.

"If in return for inside information, the recipient gave a big smile," Rakoff began, in his typical dry humor, before his voice trailed off behind the cackles in the courtroom.

Rakoff did not issue a ruling on a more contentious issue between prosecutors and defense attorneys. The government intends to call former McKinsey & Co. executive Anil Kumar, a confessed accomplice of Rajaratnam, who is not an alleged co-conspirator in the Gupta case.

Assistant U.S. Attorney Reed Brodsky said Kumar's testimony will help the jury understand the broader conspiracy in which Gupta was implicated.

Naftalis accused the prosecutor of trying to "retry to the Raj Rajaratnam case."

Rakoff was to decide that issue today before witness testimony continues with Goldman Sachs board member William W. George and former Galleon employee Michael Cardillo, an anticipated cooperating witness.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit