MANHATTAN (CN) – A Goldman Sachs executive told jurors how he had to turn away from a historic Yankees game when Warren Buffet showed interest in the bank’s top-secret fundraising initiative.
The anecdote came as a second week drew to a close in the inside trading trial of financier Rajat Gupta. Most witnesses so far have had little personal contact with Gupta, a former Goldman Sachs and Procter & Gamble board member accused of leaking confidential information to fallen hedge fund billionaire Raj Rajaratnam.
Stephen Pierce, who took the stand Thursday afternoon, held the title of Goldman Sachs’s head of equity capital for the Americas in 2008 and was subsequently promoted to global head of that division. The position gave Pierce privileged access to the bank’s top-secret Project Lotus, a code-named initiative to raise $10 billion in capital at the heart of the financial crisis.
Warren Buffet would make the wildly ambitious project feasible with a $5 billion investment, and prosecutors believe Gupta eventually tipped Rajaratnam on the deal.
On the eve of Project Lotus, Pierce testified that he was watching a very special Yankees game.
When prosecutor Reed Brodsky asked him what made it so significant, baseball enthusiast U.S. District Judge Jed Rakoff interrupted, “As opposed to the significance of being there on any given day?”
As the laughter subsided, Pierce explained, “It was the last game at the old Yankee Stadium.”
But Pierce said he needed to leave a special ceremony marking the occasion because of an important business call that he needed to take in private.
“The only place that I could find was a janitorial closet,” Pierce said.
“You sure it wasn’t a manager’s office?” Rakoff quipped.
Amused, Pierce explained that he then dialed into a 15-minute conference call with the Goldman Sachs management committee. Because of hearsay objections by the defense, however, Pierce could not divulge the contents of the conversation.
Whatever was said during the call changed the course of his night.
“I left the closet, went to my seat and said I had to go back to my office,” Pierce said, adding that he would wind up burning the midnight oil at Goldman Sachs’s office at One New York Plaza.
“How long did you stay in your office on Sept. 21,” Brodsky asked.
“All night,” he replied.
There, a small inner circle mapped out a plan to make Goldman Sachs the world’s fourth largest bank holding company.
“It was very difficult to raise money at that time,” Pierce said. “The market was basically in freefall.”
Brodsky asked, “Was it confidential or not confidential?”
“It was extremely confidential,” Pierce replied.
Pierce said that his circle planned careful protocols to interest other investors without leaking information to the market, a process known in the finance world as bringing investors “over the wall.”
In keeping with prior strategy, Gupta’s defense attorneys tried to attack Pierce’s credibility, distance the witness from their client and sow doubt about other ways information may have gotten leaked.
Gupta’s attorney David Frankel seized on two email chains to suggest that the enforcers of the confidentiality policy did not live up to their own standards.
One email, from Pierce’s colleague Lyla Bibi, went out to five recipients at 3:23 p.m. on Sept. 23, 2008, before a press release went out on the Buffett investment.
The subject line, marked “Sensitivity: Confidential,” said, “Wall Cross Script.”
Pierce said that it strategized how to bring investors into the deal.
Just before the closing bell rang that day, investor demand soared, and Goldman Sachs could only allocate roughly a quarter of the shares sought, trial evidence showed.
While Frankel could not testify during questioning, he tried to leave jurors with the impression that one of the investors or email recipients could have leaked the information to the market.
Later, Frankel pointed to another email.
At 5:08 p.m., Pierce sent his wife and lawyer a terse message: “Watch the tape. Hard work pays off.”
Roughly a half hour later, news of Buffett’s investment dominated the financial cable news cycles.
On redirect, the prosecutor played down the suggestion of impropriety, pointing out that Pierce sent the email after the close of the stock market.
Emphasizing that Pierce’s wife and lawyer received the message, Brodsky showed the jurors the rest of the email thread to humanize the communication.
“Haven’t slept in days working on this,” Pierce wrote.
Pierce testified that investors were brought in “well after the stock market closed.”
As the witness left the box, Judge Rakoff made a disclaimer that his Yankees-related quips would not affect his handling of another matter, approving a settlement between the owners of the New York Mets and Bernie Madoff trustee Irving Picard.
Despite widespread reports that Rakoff is a Yankees fan, the judge insisted he could keep his objectivity.
“This is a neutral court on the issue of Mets v. Yankees,” he swore.
That night, the Picard v. Katz settlement was reportedly approved.
Heavy-hitting witnesses are on the line-up in the next few days, including Goldman Sachs CEO Lloyd Blankfein and former McKinsey & Co. executive Anil Kumar.