Rajat Gupta faces jury in insider trading case

NEW YORK (Reuters) - The insider-trading trial of former Goldman Sachs board member Rajat Gupta, who is accused of spilling secrets about the investment bank, began on Monday with the government saying it would call a former top Goldman banker and a current board member as two of its first witnesses.

Gupta is accused of leaking stock secrets to Galleon Group hedge fund founder Raj Rajaratnam, his erstwhile friend and business associate. Rajaratnam was convicted of insider trading last year and is now in prison.

Jury selection started Monday morning in Manhattan federal court before U.S. District Judge Jed Rakoff, who expects the trial to last about three weeks. Gupta, wearing a dark suit, paid close attention from his seat at the defense table as questioning of about 100 potential jurors got underway.

Goldman could play a key role at the trial. One of the government's core allegations is that Gupta tipped Rajaratnam to a $5 billion investment by Warren Buffett's Berkshire Hathaway Inc in Goldman Sachs Group Inc during the 2008 financial crisis and Goldman's surprise fourth-quarter loss that year.

The bank has not been charged with any wrongdoing in connection with the case.

Assistant U.S. Attorney Reed Brodsky, the chief prosecutor in the case, told the judge on Monday that the government plans to call former Goldman banker Byron Trott, a long-time Buffett confidant, as a witness this week.

He said William George, a director at the investment bank since 2002, would also testify this week.

Other witnesses who could take the stand during the trial include Goldman Chief Executive Lloyd Blankfein, who testified for the government at the Rajaratnam trial and said Gupta breached his fiduciary duty to the investment bank.

TIES TO RAJARATNAM

Gupta, 63, is charged with five counts of securities fraud and one count of conspiracy. If convicted, he faces up to 25 years in prison, though such a long sentence would be unlikely. Rajaratnam was handed an 11-year term in October, the longest for insider trading in the United States, after being convicted on 14 criminal counts.

Barely a day went by at Rajaratnam's trial a year ago without mention of Gupta, a prominent name in business and charity circles. In addition to serving on Goldman's board, he also formerly led management consultant McKinsey & Co and was a director Procter & Gamble and American Airlines Corp .

But while prosecutors have called Gupta the "illegal eyes and ears" for Rajaratnam, this is a very different case.

At Rajaratnam's trial, jurors spent weeks listening to the Galleon Group founder discussing stock trades on calls secretly recorded by the FBI. With Gupta, prosecutors have no direct conversations on tape related to the trades central to their case.

Gupta has pleaded not guilty. His lawyers have argued that others may have leaked information about Goldman to Galleon and that Gupta had no reason to illegally spill corporate secrets.

"This is a classic reasonable doubt case," said Tom Dewey, a partner at law firm Dewey Pegno & Kramarsky in New York, who is not involved in the case. "The core defense message will be: 'There is just not enough evidence.'"

DECADES AT MCKINSEY

Gupta, the most prominent person indicted in the government's insider-trading crackdown, has had a remarkable fall from grace. Born in India, he earned an MBA from Harvard Business School and spent 34 years at McKinsey, serving as its global head for nine years. He retired in 2007.

He joined Goldman's board in 2006 and left in May 2010, seven months after Rajaratnam's arrest.

Gupta's lawyer, Gary Naftalis, has touted Gupta's charity, particularly his work to combat AIDS, malaria and tuberculosis, to rebut any possible government argument that he was motivated by money.

"He has had a wonderful, blameless life and out of the clear blue sky in the seventh decade of his life he decides to become a criminal?" Naftalis said at a pre-trial hearing.

Naftalis fought unsuccessfully to exclude three wiretaps between Rajaratnam and two traders that could implicate Gupta. But the judge said his ruling was not final.

The case is USA v. Gupta, U.S. District Court for the Southern District of New York, No. 11-907.

(Reporting By Grant McCool; Editing by Martha Graybow and Tim Dobbyn)

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