The U.S. government could have one very big name on its witness list when billionaire hedge-fund manager Raj Rajaratnam's trial starts Tuesday: Goldman Sachs CEO Lloyd Blankfein. Rajaratnam faces fourteen counts of securities fraud and conspiracy in what The Wall Street Journal calls "the biggest insider-trading case in a generation." Unlike the administrative hearing for former Goldman director Raj Gupta, who was charged with (but denies) passing insider info to Galleon, Rajaratnam is facing a criminal trial. It's hard to see what choice Blankfein had in "agreeing" to prosecutors' demands. What was he going to do, hide out in Richard Kimball's elevator for the next six weeks?
The U.S. wants to use Lloyd's testimony to "establish linking information about Goldman" that board members and executives shared with Gupta, who allegedly told Rajaratnam about Warren Buffett's plan to buy $5 billion of Goldman's preferred shares. The insider information generated more than $18 million "in illicit profits (or losses that were avoided)" for Galleon. Neither Lloyd, nor Goldman Sachs itself, has been charged with anything. Rather, his testimony would help establish the origin of Gupta's tip.
It's still possible that Lloyd might not be called as a witness at all, as DealBook notes. But it's also possible that Manhattan U.S. Attorney Preet Bharara, who's been making his name on aggressive insider-trading charges, could ask Lloyd to give details about Goldman's disappointing fourth-quarter 2008 results. After all, it was just 23 seconds after Lloyd's call warning the results were "going to be poor" that Gupta rushed to call Rajaratnam.
Whether Lloyd's able to smile through his testimony remains to be seen, but we hope he takes the witness stand next week. Testifying Lloyd is our favorite Blankfein Barbie.