It was perhaps the most critical piece of evidence presented at the trial of Rajat Gupta, the former Goldman Sachs director found guilty last year of leaking the bank’s boardroom discussions to his friend.
“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,†his friend, the hedge fund manager Raj Rajaratnam, told a colleague during an October 2008 conversation that the government secretly recorded.
On Tuesday, a lawyer for Mr. Gupta argued that an appeals court should overturn his client’s conviction and grant a new trial because the lower-court judge tainted the verdict by erroneously admitting that statement and other wiretapped conversations.
“The wiretaps should never have been admitted,†said Mr. Gupta’s lawyer, Seth P. Waxman, during the argument before the United States Court of Appeals for the Second Circuit in Manhattan.
Last May, a jury convicted Mr. Gupta, 64, of sharing Goldman’s confidential information with Mr. Rajaratnam. The presiding judge, Jed S. Rakoff, sentenced Mr. Gupta to two years in prison. A year before, Mr. Rajaratnam was found guilty at trial and sentenced to 11 years in prison. His appeal is also pending.
The two men, who came to this country from South Asia as university students and rose to the highest ranks of the business world, are two of the most prominent figures caught up in the government’s vast crackdown on illegal conduct on Wall Street. Since 2009, the United States attorney in Manhattan has charged 81 individuals; of those, 73 have either pleaded guilty or been convicted.
With his freedom hanging in the balance, Mr. Gupta attended Tuesday’s hearing, accompanied by his wife, daughters and about a dozen friends. He was once one of the world’s most admired businessmen, having served for a decade as the global chairman of the management consultancy McKinsey & Company. Mr. Gupta, a resident of Westport, Conn., is free on bail pending the outcome of his appeal.
The hearing, held in a cramped courtroom in the stately federal courthouse building on Foley Square, was packed with spectators. About two dozen summer law school interns from Mr. Waxman’s firm, WilmerHale, came to watch, as did a class of curious high school students from the Beacon School on the Upper West Side. The youth-filled courtroom forced several members of Mr. Gupta’s large legal team and a group of senior government prosecutors to watch a televised simulcast of the proceeding in an overcrowded anteroom.
Mr. Waxman tried to persuade the three-judge appeals-court panel â€" Jon O. Newman, Amalya L. Kearse and Rosemary S. Pooler â€" that the lower court made a series of incorrect rulings during the trial. Much of the time was spent discussing a ruling by Judge Rakoff that curtailed the testimony of Mr. Gupta’s daughter, Geetanjali Gupta. She had planned to testify that at the time of the tips cited by prosecutors, her father told her that he believed that Mr. Rajaratnam had stolen money from him as part of an investment they had together.
Judge Rakoff curbed her testimony, allowing her to say only that her father was upset with Mr. Rajaratnam. If the jury had heard that Mr. Rajaratnam might have cheated Mr. Gupta, “that testimony would have powerfully refuted the government’s theory of motive,†Mr. Waxman said.
Judge Newman appeared skeptical that the daughter’s testimony would have swayed the jury given the substantial circumstantial evidence of Mr. Gupta’s guilt.
“You’re telling me that if the jury had heard that statement, it would have disregarded all the other evidence in the case?†Judge Newman asked. “How realistic is that?â€
Later on in the argument, Judge Newman recounted damning evidence from the trial â€" phone logs and trading records that showed how less than one minute after hanging up from a Goldman board call, Mr. Gupta phoned Mr. Rajaratnam, who quickly bought about $35 million worth of Goldman stock.
“Are you telling us that that’s a coincidence?†Judge Newman asked.
Mr. Waxman tried to avoid answering the question, but Judge Newman persisted. “O.K., I embrace it â€" it’s a coincidence,†said Mr. Waxman, a former solicitor general of the United States who is considered one of the country’s top appellate lawyers.
Richard C. Tarlowe, the federal prosecutor who argued the appeal for the government, seized on Judge Newman’s incredulity when he rose to speak. “The argument†â€" that the phone calls and trades were coincidental â€" “was made to the jury, and it was rejected because of its absurdity,†he said.
For Mr. Gupta to have his conviction reversed, the appeals court does not have to believe in his innocence. He can win a new trial if the judges decide that Judge Rakoff improperly admitted the wiretapped conversations between Mr. Rajaratnam and his colleagues that suggested that he had an inside source at Goldman, or made other faulty rulings.
During the argument, Mr. Waxman characterized Mr. Rajaratnam’s statements as unreliable testimony that was not in furtherance of any insider trading conspiracy. Mr. Rajaratnam was a braggart who “lied about his sources to impress his subordinates,†Mr. Waxman said.
“The court’s decidedly asymmetrical interpretation of the rules of evidence left the jury with a distorted picture, in which Gupta was accused by the self-serving hearsay of a known fabulist,†Mr. Gupta’s legal team wrote in court papers.
A ruling by the appeals court is expected in the coming months, and one party closely watching for a decision is Goldman Sachs, which had its lawyers attend Tuesday’s hearing. Because the bank’s bylaws require it to cover the legal fees for top officers and directors, Goldman is paying for Mr. Gupta’s costly defense, which has reached at least $35 million.
Separately, a judge ordered Mr. Gupta to pay Goldman more than $6.2 million to refund the bank for legal expenses related to an internal investigation and other costs. Mr. Gupta had agreed to reimburse the bank for his legal bills if a jury convicted him, but Goldman must continue to pay them until the final outcome of his appeal.
