Assistant U.S. Attorney Richard Tarlowe told a jury yesterday there was powerful circumstantial evidence that Rajat Gupta, a former Goldman Sachs and Procter & Gamble board member, broke the law by disclosing confidential non-public information to Galleon Group hedge fund founder Raj Rajaratnam.

Delivering an animated closing argument in the three-week-long trial, Tarlowe said Gupta “abused his position as a corporate insider by providing secret corporate information” about deals and earnings “to his longtime business partner and friend.”

Tarlowe said Gupta helped Rajaratnam, now serving 11 years in prison after being convicted of insider trading last year, make “millions in illegal profits” by cheating “average, ordinary investors who did not have a secret pipeline to a corporate insider like Gupta.”

Gupta attorney Gary Naftalis answered after the morning break, telling the jury in Southern District Judge Jed Rakoff’s courtroom that the prosecution presented “a parade of witnesses who don’t establish anything that goes to the core” of the charges against his client. Naftalis called the prosecution’s attempt “a gambit to bamboozle” the jury and “give people the illusion that something was proven when it wasn’t.”

Naftalis, of Kramer Levin Naftalis & Frankel, said Tarlowe and fellow prosecutor Reed Brodsky of the Southern District U.S. Attorney’s Office had failed to produce “hard, real, direct evidence” of Gupta feeding information to Rajaratnam. He accused the government of “looking at the world through dirty windows” and having a jaundiced view of the relationship between Gupta and Rajaratnam, whose regular business dealings were a “perfectly legal, lawful, legitimate thing.”

“If you use your common sense, you will find the government has really fallen short,” Naftalis said, telling the jury the government had failed to prove motive.

He faulted the testimony of two government cooperators who have pleaded guilty: Anil Kumar, the former director of McKinsey & Co. consultants whom Rajaratnam paid $2.6 million for tips, and former Galleon trader Michael Cardillo, who shorted Procter & Gamble stock allegedly on a tip from Gupta.

Both Kumar and Cardillo, he said, couldn’t be believed because they are men “who have their own criminal problems, who have sentences hanging over their heads.”

Cardillo, he said, was “despicable,” a “guy who walks around with a body recorder at his friend’s wedding” during the Galleon probe, “to secretly and surreptitiously try and entrap and ensnare people in criminality.”

Trades at Issue

Gupta, the 63-year-old retired three-term head of McKinsey & Co., is facing one count of conspiracy to commit securities fraud and five substantive counts of securities fraud in connection with trades allegedly executed by Galleon in the immediate aftermath of Goldman Sachs and Procter & Gamble board meetings that Gupta attended by phone and were immediately followed by conversations he had with Rajaratnam.

• One count for March 12, 2007, when Gupta concluded a conference call to Goldman where he learned the company’s earnings would surprise Wall Street and then called Rajaratnam. Twenty-three minutes after the conference call ended, Rajaratnam bought 450,000 shares of Goldman for over $90 million—according to Tarlowe “his biggest trade by far” in Goldman.

• Two counts for trades on Sept. 23, 2008, when, a week after the collapse of Lehman Brothers, with the market about to close, Gupta concluded a Goldman board of directors conference call where he learned Warren Buffet and Berkshire Hathaway were making a $5 billion confidence-boosting investment in Goldman. He immediately called Rajaratnam, who directed two of his traders to buy 100,000 shares and 250,000 shares, respectively.

• One count for Oct. 23, 2008, when Gupta learned from Goldman chairman Lloyd Blankfein, who testified at trial, that Goldman was preparing to announce its first quarterly loss in its history as a public company. Twenty-three seconds after speaking with Blankfein, Gupta called Rajaratnam. At the opening of trading on Oct. 24, at 9:31 a.m., Rajaratnam sold all 150,000 of his Goldman shares.

• The fifth and final substantive securities fraud count is based on a Jan. 29, 2009, Procter & Gamble board meeting where Gupta learned the company was lowering its estimates on organic sales growth for the year. The next day, R.K. Rajaratnam, Rajaratnam’s brother, began selling short big blocks of the company’s shares and then told Cardillo, who did the same.

Tarlowe told the jury that Cardillo’s testimony on these trades is “devastating for the defense.”

Tarlowe also took the jury through several other trades that were not charged as individual securities counts but are evidence of the conspiracy—including big Galleon trades ahead of the news that Procter & Gamble was selling its Folgers coffee unit to Smuckers in June 2008, good news about P&G earnings in December 2008 and a “giant” September 2007 trade ahead of a Goldman earnings announcement that far surpassed analysts’ estimates.

On that last trade, Tarlowe said, Gupta and Rajaratnam spoke for six minutes on Sept. 18, phone records show, and the next morning Rajaratnam “bought a ton of it!” twice as much as he had before, “800,000 shares worth! In one day!”

Together, Tarlowe said, the timing of board meetings, phone calls, trading records, e-mails and instant messages show a pattern leading to the “inescapable conclusion” that Gupta is guilty.

He replayed tapes for the jury, including one of Rajaratnam explaining to Galleon trader Ian Horowitz on the phone how he came to make the last-second Goldman trades for 350,000 shares on Sept. 23, 2008.

“I got a call at 3:58 saying something good might happen to Goldman, right?” Rajaratnam tells Horowitz, who repeatedly states, “We’ll talk about it when you come in. You did nothing wrong.”

“That’s three separate times Horowitz is saying ‘Let’s not talk about this on the phone’!” Tarlowe exclaimed.

Tarlowe derided the defense for calling Gupta character witnesses “who know absolutely nothing about the facts of this case.”

In answer to Naftalis’ claim that not a “dime” found its way into Gupta’s pocket, Tarlowe said Gupta did or could realize several benefits from tipping Rajaratnam, including his assistance in drawing Rajaratnam’s support for New Silk Route, Gupta’s $1.5 billion private equity fund, his own return on investment from Galleon funds, and his role as chairman of one Rajaratnam’s funds, Galleon International.

‘It Didn’t Happen’

Naftalis answered that the government was focusing on an easy target because it didn’t have the proof on Gupta.

“I sometimes wondered whether Raj Rajaratnam was the man on trial because so much of the evidence dealt with Rajaratnam’s trading activities and so much of Mr. Tarlowe’s summation talked about Rajaratnam,” Naftalis said. “Whatever dealings Mr. Gupta had with him were totally legitimate, like New Silk Route, and represented only a small part of Mr. Gupta’s busy and admirable life.”

Naftalis said none of the government’s extensive wiretaps, conducted over eight months in the Galleon probe, had Gupta telling Rajaratnam confidential information.

“If Rajat Gupta was truly tipping in that eight-month period, you’d think there would be a recording that captured it,” he said. “And there wasn’t, I suggest to you, because it didn’t happen!”

Only two recordings of Gupta were heard on tape during the trial. One was of him leaving a message for Rajaratnam to call him back. The second was a lengthy phone call in July 2008 in which Naftalis said no confidential information was exchanged.

But Tarlowe said that same phone call, in which Rajaratnam asks Gupta about rumors that Goldman was considering purchasing a major commercial bank, showed the ease with which Gupta discussed Goldman secrets, confirming that Goldman was indeed considering a bank purchase and telling Rajaratnam it was also looking into an insurance company, with AIG “definitely in the discussion.”

“Gupta doesn’t say ‘Raj, what are you thinking? You know I can’t talk about those kinds of things. I’m on the board’,” Tarlowe said.

Brodsky listed all of the coincidences that had to occur for there to be no connection between the information Gupta got at board meetings, the quick calls he made to Rajaratnam, the quick trades Rajaratnam made and the tapes on which he’s heard talking about the news he received on Goldman, saying sarcastically that Gupta must be “one of the unluckiest men in the world.”

On rebuttal, Brodsky said that “the defense spent a little time saying this is a strange insider-trading case. It is not. There is nothing strange about it.”

He added, “The defense seems to argue the tipper must trade. Listen to Judge Rakoff’s instructions. You wont hear that, because it’s not the law. Evidence of Mr. Gupta’s tips are overwhelming.”