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Figure in Insider Case Sought to Quit Goldman

Rajat K. Gupta, the former Goldman Sachs director accused by the government of passing insider information about the Wall Street firm, had tried to resign from the Goldman board in the middle of the 2008 financial crisis, only weeks before he is said to have provided the tips to the hedge fund manager Raj Rajaratnam.

Rajat Gupta
Umesh Goswami | The India Today Group | Getty Images
Rajat Gupta

According to an audiotape recording released by federal prosecutors on Friday, Mr. Gupta sought to leave the Goldman board to take a job as a senior adviser at Kohlberg Kravis Roberts, the private equity firm led by Henry R. Kravis, a friend of Mr. Gupta’s.

The recording also suggests that Mr. Gupta may have been having personal troubles at the time he is accused of passing the tips. The tape offers an unusual window into Mr. Gupta’s world during the period that the government says he tipped off Mr. Rajaratnam.

The case is being zealously tracked by corporate America’s top echelon because of Mr. Gupta’s deep connections at the highest levels: for a decade he ran McKinsey & Company, the prestigious consulting firm, and served on several prominent boards, including those of Procter & Gamble and AMR , the parent company of American Airlines.

On Sept. 9, 2008, Mr. Gupta submitted a formal resignation letter to Goldman , a person briefed on the recording said, speaking on the condition of anonymity. But the firm’s executives, including its chief, Lloyd C. Blankfein, persuaded him to stay on the board because they thought that it would send the markets a bad message to have a director resign as a financial crisis was exploding.

Two weeks later, the Securities and Exchange Commission contends, Mr. Gupta told Mr. Rajaratnam about Berkshire Hathaway’s $5 billion investment in Goldman before it was publicly announced the next day. The S.E.C. also says Mr. Gupta swapped confidential Goldman information with Mr. Rajaratnam two other times during 2008. In each case, Mr. Rajaratnam traded illegally on the tips, the S.E.C. says. A lawyer for Mr. Gupta has denied the charges.

Mr. Gupta eventually did not stand for re-election from Goldman’s board and stepped down when his term ended in May 2010.

The news of Mr. Gupta’s resignation letter to Goldman’s board in 2008 was hinted at in the audiotape of a telephone conversation on Aug. 15, 2008, between Mr. Rajaratnam and Anil Kumar, both friends of Mr. Gupta’s, and it was confirmed by people briefed on the matter who spoke on the condition of anonymity. Mr. Kumar, a former executive at McKinsey, has pleaded guilty to insider trading and testified last week as a government witness in Mr. Rajaratnam’s trial.

On the nine-minute call released by prosecutors, the two men discuss Mr. Gupta’s family, Goldman, K.K.R. and his role as chairman of New Silk Route Partners, a private equity firm, which in some cases competes with Goldman for deals.

“Goldman is one board right,” Mr. Rajaratnam says on the recording. And he’s, you know, he’s essentially an observer status, right? He’s not in there, you know, rolling up his sleeves.” Later he added: “And the issue is the perceived conflict of interest.”

The two also suggest that one reason for Mr. Gupta’s decision to leave the Goldman board in 2010 was a post he had taken at K.K.R. in 2008.

“But is it really that he was so greedy for the $12 million that K.K.R. has offered him?” Mr. Kumar asks on the recording.

Mr. Rajaratnam said that “he ran the numbers with me, right, it was about $5 million a year with upside.”

A K.K.R. spokesman said that Mr. Gupta worked for the firm as a senior adviser and the compensation numbers discussed by Mr. Rajaratnam and Mr. Kumar were inaccurate. Mr. Gupta stepped down as a K.K.R. adviser this month after the S.E.C.’s action against him.

A spokeswoman for Goldman Sachs declined to comment on the recording.

Later in the conversation, Mr. Rajaratnam further speculates on why Mr. Gupta took the position at K.K.R. and decided to leave Goldman.

“My analysis of the situation is he’s enamored with Kravis, and I think he wants to be in that circle,” Mr. Rajaratnam says.

“That’s a billionaire circle, right? Goldman is like the hundreds of millions circle, right?” He added: “And I think here he sees the opportunity to make $100 million over the next five years or 10 years without doing a lot of work.”

Mr. Rajaratnam and Mr. Kumar also seem worried about their friend.

“At some point, what I worry about is that there can be this massive implosion in him,” Mr. Kumar said.

“He didn’t seem comfortable,” Mr. Rajaratnam said. “He seemed like he was tormented, right?”

The second week of Mr. Rajaratnam’s criminal insider trading trial begins on Monday in United States District Court in Manhattan. The first two minutes of the nine-minute recording were presented on Friday as evidence of insider trading in Mr. Rajaratnam’s trial.

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