Hedge fund billionaire 'violated Goldman ethics'

Jurors in the trial of Raj Rajaratnam, the hedge fund executive accused of insider dealing, came face to face yesterday with one of Wall Street's most powerful bankers, as the Goldman Sachs chief executive, Lloyd Blankfein, took the witness stand.

At the urging of prosecutors, Mr Blankfein declared that one of the company's former board members, Rajat Gupta, had violated Goldman's ethics policies by passing details of board discussions to Mr Rajaratnam within hours of meetings wrapping up.

The court was played wiretapped conversations from 2008 in whichMr Gupta told Mr Rajaratnam that Goldman's board was debating whether to buy a high-street bank or an insurance company, to take advantage of plunging share prices at other companies during the credit crisis. On several occasions, prosecutors stopped the tapes to ask Mr Blankfein if he recalled those board talks and whether Mr Gupta was passing on accurate information.

Among a string of share trades through which Mr Rajaratnam's hedge fund, Galleon, is alleged to have netted $45m (£28m) in illegal profits, was the purchase of Goldman shares in September 2008 on the eve of an investment in Goldman by Warren Buffett. Mr Blankfein explained why the pending investment by Mr Buffett had been expected to boost Goldman's share price. "However shape we were in before, [investors] would think we were in better shape as a result of this," he said.

Mr Buffett is a "very, very shrewd and successful investor", he added, and his investment would be a positive sign to the markets at a time of financial crisis.

Later, in October that year, Mr Gupta called 23 seconds after the end of a board meeting to reveal details about unexpectedly poor quarterly results that the bank was about to publish. Galleon sold all of its Goldman shares.

Last month, the US Securities and Exchange Commission launched a so-called "administrative action" against Mr Gupta, but he has not been charged with criminal offences. Prosecutors have won guilty pleas from 19 people involved in insider dealing as a result of the Galleon inquiry, but Mr Rajaratnam says he never did more than normal investment research.

Mr Gupta is counter-suing the SEC, saying he denies accusations of wrongdoing and has been unfairly denied his right to a jury trial.