Prosecutors Show Few Cards at Gupta Hearing

MANHATTAN (CN) - The investigation of Goldman Sachs employee could shake up the inside-trading trial of the megabank's former board member Rajat Gupta, lawyers revealed at a pretrial hearing Thursday.

Prosecutors say Gupta contributed to the largest insider-trading ring in U.S. history engineered by Galleon Group founder Raj Rajaratnam, who was sentenced last year to 11 years in prison and fined $156.6 million.

Gupta's attorney Gary Naftalis said that prosecutors called him Wednesday night at 11:06 p.m. to inform him about potentially exculpatory evidence.

Such evidence is known as Brady material after Brady v. Maryland, in which the Supreme Court said it is a violation of due process for prosecutors to suppress evidence that could favor the defendant.

Gupta apparently could benefit from the federal investigation of another Goldman Sachs employee in the Central District of California.

Assistant U.S. Attorney Reed Brodsky handed a letter with the name of that individual to U.S. District Judge Jed Rakoff at the hearing Thursday.

"Now that you've asked me to put it under seal, I'm all hot and bothered and can't wait to read it," Rakoff quipped as he picked up the paper.

Both parties and the judge kept mum about who may be under investigation, or how, if at all, the probe will impact Gupta's trial in May.

Rakoff said he was eager to wrap up the pretrial procedures, as prosecutors struggled to make last-minute changes that they claimed were necessary in light of new evidence.

Brodsky won a request to change the bill of particulars, which details the specific charges against Gupta that the government plans to prove at trial. A recently uncovered web chat between Gupta and Rajaratnam indicate the existence of another inside tip, Brodsky said.

The prosecutor claims that he had suspicions about the tip before but could not add the charge earlier because the government's confidential informant Michael Cardillo claimed not to recall any information about it.

Naftalis objected to the government making changes so close to trial.

"We are entitled to some sense of finality," he said.

Rakoff allowed for the change, noting the defense would have to prepare for the web chats to be used at trial anyway. He added that he would bar similar requests from the government going forward.

Noticing that neither party seemed happy about the ruling, the judge said he anticipated they would move for him to reconsider.

Naftalis said he would cut his losses, quoting a country music classic, "The Gambler."

"In the words of legal philosopher Kenny Rogers, 'you've got to know when to fold them," Naftalis said.

Brodsky was not yet ready to lay down his hand, and he said he needed until Monday to interview a witness that arrived unexpectedly at the U.S. Attorney's Office.

Rakoff extended the deadline but warned him he would have "a tough road to hoe."

There will be a final conference on May 16, before trial begins roughly a week later.

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