Peter Foley/Bloomberg NewsAn inquiry of an unnamed Goldman Sachs executive emerged during a hearing in the case of Rajat K. Gupta, center, who is accused of telling Raj Rajaratnam about the bank’s boardroom discussions.Federal prosecutors in California are said to be investigating whether an investment banker at Goldman Sachs leaked confidential information about health care deals to the Galleon Group, the defunct hedge fund that was run by Raj Rajaratnam.
A criminal investigation of an unnamed Goldman executive emerged last week during a pretrial hearing in the case of Rajat K. Gupta, a former Goldman director accused of telling Mr. Rajaratnam about the bank’s private boardroom discussions.
The disclosures, which come less than a month before the scheduled start date of Mr. Gupta’s trial, could aid in the defense of Mr. Gupta. His lawyers are expected to argue that Mr. Rajaratnam had other potential tipsters inside Goldman.
The investigation of the Goldman banker, now identified as Matthew E. Korenberg, also underscores the breadth of the government’s crackdown on illegal stock trading on Wall Street. Until now, the vast majority of the Justice Department’s insider trading prosecutions have been handled by federal prosecutors in Manhattan. The United States attorney in Los Angeles is handling this inquiry.
Mr. Korenberg, 37, joined Goldman in 1999 and is based in San Francisco. On Thursday, his lawyer, John C. Hueston, a partner at Irell & Manella and a former lead Enron prosecutor, said that is client had done nothing wrong.
“For more than two years, the government has pursued an investigation with nothing to show for it,” Mr. Hueston said. “There has never been any allegation of any tipping or insider trading by Matt Korenberg.”
Michael Duvally, a Goldman spokesman, said Mr. Korenberg remains actively employed by the firm.
“We have been aware of these allegations for more than two years, investigated them, and fully cooperated with federal authorities in the matter,” Mr. Duvally said.
Thom Mrozek, a spokesman for the United States attorney in Los Angeles, declined to comment.
Mr. Korenberg was named a managing director at Goldman in 2009 and is at least the fourth person at the bank touched by the government’s insider trading inquiry. The government is also investigating the relationship between Galleon and David Loeb, a Goldman salesman, and Henry King, a technology stock analyst at the bank.
The government possesses secretly recorded telephone conversations of a Goldman executive discussing confidential information about Intel and Apple with Mr. Rajaratnam that have yet to be played in court, according to trial testimony last month.
Neither Mr. Loeb nor Mr. King has been accused of any wrongdoing.
The insider trading investigation by the United States Attorney’s office in Los Angeles has been examining Galleon’s trading in at least two health care mergers on which Goldman’s bankers advised.
The deals, according to a person briefed on the investigation, include a takeover of Advanced Medical Optics by Abbott Laboratories in January 2009.
Mr. Korenberg worked on a Goldman team that advised Advanced Medical Optics, whose shares rose about 150 percent when the deal was announced.
Paul Yook, a former Galleon employee who focused on health care stocks, is also a subject of the investigation. Mr. Yook, who did not return a telephone call seeking comment, worked as a health care investment banker at Goldman earlier in his career and was acquainted with Mr. Korenberg.
Last week, prosecutors provided Mr. Gupta’s lawyers with Mr. Korenberg’s name as part of a so-called Brady disclosure, which requires the government to disclose evidence that could be helpful to the defense.
Mr. Gupta’s lawyers will most likely try to weaken the case against their client by introducing evidence of other possible leakers inside of Goldman.
“The wrong man is on trial,” Gary P. Naftalis, a lawyer for Mr. Gupta, said in a previous hearing.
Prosecutors are expected to counter that the insider trading charges against Mr. Gupta are limited to two stocks — Goldman Sachs and Procter & Gamble — and have no relation to any possible leaks emanating from Goldman’s trading floor or investment banking unit.
Mr. Gupta, 63, the former global head of the consulting firm McKinsey & Company, was a member of Goldman’s board of directors. The government suspects that on several occasions Mr. Gupta, after participating in the bank’s board meetings, passed on confidential information to his good friend Mr. Rajaratnam. Galleon traded in Goldman stocks based on these tips, prosecutors say.
The government has also accused Mr. Gupta of leaking secret news about Procter & Gamble to Mr. Rajaratnam.
Yet the Gupta case presents challenges for prosecutors. Many of the defendants that have pleaded guilty or have been convicted of insider trading, including Mr. Rajaratnam, have been caught on wiretaps swapping secret information. There is no direct evidence of insider trading between Mr. Gupta and Mr. Rajaratnam; instead, the government is relying on phone bills and trading records to establish Mr. Gupta’s guilt.
Mr. Gupta’s lawyers will also seek to prevent prosecutors from playing a wiretapped phone call that could pose problems for their client. In one call, which was played during Mr. Rajaratnam’s trial, Mr. Rajaratnam tells a colleague, “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.”
Because the call was between Mr. Rajaratnam and his colleagues, and did not involve Mr. Gupta, it could be inadmissible evidence at trial.
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