NEW YORK (Reuters) - Former Goldman Sachs Group Inc board member Rajat Gupta stood to profit from investments he made in funds managed by now-imprisoned hedge fund founder Raj Rajaratnam, a witness testified at Gupta's insider-trading trial on Wednesday.
Whether Gupta, 63, actually profited is in dispute at the trial in District Court in New York. Gupta's lawyers contend he lost all of a $10 million investment with Galleon Group founder Rajaratnam and that Gupta, a multimillionaire, had nothing to gain financially by passing corporate secrets to the fund manager.
Gupta is charged with securities fraud and conspiracy. Prosecutors say he illegally leaked confidential information to Rajaratnam between March 2007 and January 2009 while serving on the boards of Goldman and Procter & Gamble. Rajaratnam was convicted of conspiracy and securities fraud last year and is serving an 11-year prison term.
Under questioning, former Galleon portfolio manager Isvari Mahadeva said the fund firm's records showed Rajaratnam, Gupta and a third money manager, Ravi Trehan, formed Voyager Capital Partners in 2005, with Gupta contributing $5 million.
She said that in 2007 Gupta had an option to invest an additional $5 million that could reap 10 percent in additional profit.
"I was told he chose to exercise the option," said Mahadeva, who worked for Galleon for 12 years until Rajaratnam was arrested in October 2009 in a broad crackdown on insider trading.
A defense lawyer, Robin Wilcox, asked Mahadeva whether she knew anything about Gupta profiting or if he got back his $10 million investment.
"No, no information," she said.
Mahadeva testified that Gupta and Rajaratnam had a difference of opinion about Gupta's option.
Gupta believed the additional profits should be counted from the fund's date of inception, she said, while Rajaratnam believed the additional profits should apply from the date the option was exercised.
She said she was aware of conversations between the two men about the option at Galleon's Manhattan office but did not know "what the tone of the conversation was."
The defense says Gupta and Rajaratnam had a falling out in 2008. Another prosecution witness, Anil Kumar, testified that Gupta told him in 2009 that he was considering suing Rajaratnam over his loss.
Kumar, a former McKinsey & Co consultant, knew both men. Gupta was a mentor to Kumar when Gupta headed the business management consultancy for nine years until he retired from the firm at the end of 2007.
Mahadeva took the witness stand on Wednesday morning.
Goldman Sachs Chief Executive Lloyd Blankfein, who started testifying on Monday but did not finish, could resume later on Wednesday after attending his daughter's high school graduation ceremony, or on Thursday.
The jury had a free day on Tuesday because Judge Jed Rakoff went to Washington, D.C., to speak at an annual conference for compliance and regulatory lawyers and officers. The trial began May 21 and testimony is expected to run through this week.
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 John Wallace