MANHATTAN (CN) - The inside-trading case against Rajat Gupta, a former Goldman Sachs and Procter & Gamble board member, spiraled toward trial Tuesday with five rulings upholding charges against him, authorizing wiretap evidence and granting key evidence to his defense.
Gupta is accused of conspiring to commit securities fraud with Galleon Group founder Raj Rajaratnam, who was sentenced last year to 11 years in prison, in the largest hedge-fund insider trading case in U.S. history.
Rajaratnam's shadow looms large in the bill of particulars against Gupta, which prosecutors unveiled Tuesday.
The government has named eight alleged co-conspirators with Gupta. Six of their names were redacted. The other two, Galleon employees Michael Cardillo and Ian Horowitz, were swept up in the dragnet that snared Rajaratnam.
In the bill of particulars, prosecutors say that Gupta gave Rajaratnam many inside tips related to Goldman Sachs, including quarterly earnings, board member discussions, and Warren Buffett's $5 billion investment in Goldman after the worldwide financial crisis began.
Gupta also told Rajaratnam about Procter & Gamble's finances and its sale of its Folgers business to Smucker's, prosecutors claim.
More allegations may be pending, prosecutors say.
"Although the government believes that there is evidence of additional tips from Gupta to Rajaratnam in furtherance of the charged conspiracy, the government does not intend at this time to offer evidence of such tips in its case-in-chief; if the government intends to offer additional tips in its case-in-chief, the government will supplement its Bill of Particulars by no later than three weeks prior to the start of trial," Assistant U.S. Attorney Reed Brodsky wrote in the bill of particulars.
Prosecutors claim that Gupta wanted to cultivate a personal and business relationship with Rajaratnam, a billionaire.
Defense attorneys claim the men's relationship soured during the time that Gupta is alleged to have tipped him.
Jurors will likely be able to hear Rajaratnam and Gupta chat in wiretapped phone conversations, because of a Tuesday ruling by U.S. District Judge Jed Rakoff.
Rakoff wrote that he was persuaded by a ruling from his colleague Richard Holwell that allowed prosecutors to use the recordings as key evidence against Rajaratnam last year.
"While Judge Holwell's opinion denying Rajaratnam's motion has no preclusive effect on Gupta ... lack of preclusion does not mean lack of persuasion, especially where the wiretaps at issue here are the same wiretaps at issue in the Rajaratnam case," Rakoff wrote. "Having reviewed Judge Holwell's as well as the parties' briefs submitted in the instant case, this Court finds itself in agreement with Judge Holwell's decision not to suppress the wiretap evidence."
Rakoff also handed the defense some key tools for the upcoming trial.
Rakoff ordered Goldman Sachs CEO Lloyd Blankfein to share with Gupta's attorneys details of his interviews with financial regulators and government prosecutors.
The government hoped to suppress the details of these talks by invoking work product privilege.
But Rakoff found that defense attorneys' concerns that the government could have pressured Blankfein to testify against their client outweighed privacy concerns.
"The ability of a party to meet with a non-party witness, show him documents and ask him questions, and then mask the entire preparation session in the cloak of work product protection would serve to facilitate even the most blatant coaching of a witness if it could not be the subject of inquiry," Rakoff wrote. "To allow the invocation of work product protection to succeed in such circumstances would leave the party taking a deposition with no remedy to determine how, if at all, a witness's testimony was influenced, not by advice from the witness's own counsel, but by suggestions from the questioner's adversary, who, especially if possessing governmental power, was in a position to unfairly pressure the witness."
Rakoff criticized prosecutors for distancing themselves from their collaboration with financial regulators to avoid turning over evidence to the defense.
"That separate government agencies having overlapping jurisdiction will cooperate the factual investigation of the same alleged misconduct makes perfect sense; but that they can then disclaim such cooperation to avoid their respective discovery obligations makes no sense at all," Rakoff wrote in a separate order.
While the SEC interviewed only two witnesses alone, the agency collaborated with the Department of Justice on 44 interviews, Rakoff said.
Federal prosecutors characterize these interviews as "parallel" investigations because calling them "joint" investigations would obligate them to double the records they are obligated to share.
Rakoff was not impressed by the distinction.
"An investigation may be joint for some purposes; it may be independent for others. But 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," he wrote.
The rulings hash out the final phrases of discovery, as the parties prepare for a May 21 trial.
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