Prosecutors Plan to Call Blankfein as Witness in Rajaratnam Case

Federal prosecutors say they do plan to call Goldman Sachs Chairman Lloyd Blankfein as a witness in the insider trading trial of Raj Rajaratnam, according to a letter sent to the judge in the case.

Goldman Sachs CEO Lloyd Blankfein
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Goldman Sachs CEO Lloyd Blankfein

Blankfein had been on the list of potential witnesses in the case, but it was not clear until now that prosecutors do, in fact, plan to call him to testify. It is not clear from the letter when the testimony would occur. The trial, which is expected to last two months, is in its second full week of testimony.

According to the letter, obtained by CNBC, the government wants to question Blankfein about the service of Goldman board member Rajat Gupta, allegedly a key source of inside information for Rajaratnam. Rajaratnam, the 53-year old founder of the Galleon Group, faces 14 criminal counts. Gupta is accused in an administrative complaint by the Securities and Exchange Commission of supplying illegal tips to Rajaratnam. Gupta has denied the allegations and last week sued the SEC.

Prosecutors want to question Blankfein about "the duties of confidentiality that Gupta owed to Goldman Sachs, and certain confidential information that Gupta obtained through his service on Goldman's board in 2008."

But they also want to limit what defense attorneys can ask Blankfein in cross-examination, according to the letter.

Defense attorneys should not be allowed to ask Blankfein about any pending government investigations or legal proceedings, the government argues, since the questioning might imply that Blankfein is altering his responses in order to gain a more favorable outcome for the firm.

In making that argument, prosecutors make a revelation that should be comforting to Goldman Sachs investors: "This Office has not notified Mr. Blankfein or Goldman Sachs that either is a target (or, for that matter, a subject) of any pending criminal investigation," the letter says.

Prosecutors also want to bar defense attorneys from asking Blankfein about his role — or Goldman's role — in the 2008 financial crisis.

"Whether Goldman Sachs played any role in that crisis is wholly irrelevant to Mr. Blankfein's testimony about Mr. Gupta," the letter says.

Rajat Gupta
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Rajat Gupta

In response, lead defense attorney John Dowd says questioning Blankfein about pending legal proceedings should be fair game.

"It has never occurred to Counsel to suggest that the fact of these proceedings indicates that Mr. Blankfein cannot be trusted," Dowd writes. "However, whether Mr. Blankfein is testifying in this matter in the hopes of obtaining a better resolution to some of these ongoing proceedings is a fair subject for cross examination."

A Goldman Sachs spokesman did not immediately respond to a request for comment.

U.S. District Judge Richard Holwell is expected to hear oral arguments about Blankfein's testimony on Wednesday. Depending on the judge's ruling, the government could still decide against calling Blankfein to testify.