Many aware of sale deal, insider trading trial told

Lawyers for Rajat Gupta, the former Procter & Gamble and Goldman Sachs Group director on trial for insider trading, used the cross-examination of P&G's finance chief to sow doubt that their client was the source of leaks about the company's 2008 sale of its Folgers Coffee unit.

Defence attorney Gary Naftalis questioned P&G chief financial officer Jon Moeller about others who were aware that Cincinnati-based P&G planned to sell the unit to JM Smucker.

Moeller said employees in a half-dozen departments at both companies, as well as bankers and lawyers, knew of the deal in the weeks before it was announced.

"And all these people were working on the transaction, in addition to the Smucker people?" Naftalis asked Moeller in Manhattan federal court. "Yes, that's true," Moeller said.

Gupta, who ran McKinsey & Co from 1994 to 2003, is on trial accused of leaking tips about P&G and Goldman Sachs to his friend and business partner, Galleon Group co-founder Raj Rajaratnam.

Gupta, who has pleaded not guilty, is charged with conspiracy and securities fraud, which carries a maximum 20-year prison sentence. Rajaratnam is serving an 11-year prison term for trading on inside information. The two are the biggest figures yet to be caught up in a nationwide insider-trading probe.

Gupta's tips included leaks about the Folgers deal and P&G earnings in January 2009, prosecutors said. After Moeller left the witness stand, Michael Cardillo, a former Galleon Group portfolio manager, resumed testimony he began last week.

He told jurors that he bought Smucker stock in June 2008 after being told by one of Rajaratnam's brothers, also a Galleon fund manager, that Smucker would buy Folgers.

"He said the information was coming from Rajaratnam's guy at P&G," Cardillo said of Raj Rajaratnam's brother, RK Rajaratnam.

Cardillo testified that he bought 75,000 Smucker shares for RK Rajaratnam on June 2, 2008 - about one-quarter of all trades in Smucker that day - and 17,000 shares for himself the next day. It was the first time he had bought the stock, he said.

Prosecutors showed jurors instant message exchanges from that day in which RK Rajaratnam told Cardillo to buy Smucker stock. They displayed emails between the Rajaratnam brothers in which RK Rajaratnam offered legitimate reasons for the trades. Prosecutors have previously said the emails served as cover for trades based on inside tips.

- Bloomberg