Insider Trading Evidence Not Applicable

Story first appeared in The Wall Street Journal.

Lawyers for the former Goldman Sachs Group Inc. director, who is facing a criminal trial on insider trading charges, urged the court late Friday evening to bar from evidence three wiretapped conversations that federal prosecutors said were crucial to their case.

In the calls, the Galleon Group hedge-fund founder, who was convicted and sentenced in an insider trial last year, talks about getting inside stock tips from someone at Goldman.

Prosecutors say he was referring to the director, and recently filed a motion that referred to those wiretaps as invaluable to their case. The importance of this evidence cannot be overstated.

But in a 34-page memorandum filed close to midnight Friday evening, the defense team said those conversations are nothing but third hand information passed on by a felon.

The government's application is an act of desperation, breathtaking in its procedural audacity, seeking to rescue a weak case by asking the Court to do something that is both unprecedented and unwarranted. In order to make the logical journey the government will suggest, the jury will have to ignore contrary evidence—detailed above—at every step of the way.

The three wiretaps are some of the government's most provocative pieces of evidence, even though the director's name never comes up. The defense attorney says that is exactly why it shouldn't be allowed in—because it would unfairly prejudice the jury.

The other calls occurred on Sept. 24, the day after Goldman announced it would receive a $5 billion investment from Berkshire Hathaway Inc. Galleon earned more than $800,000 trading on the tip.

Government prosecutors have argued the tapes should be allowed in the trial because they meet a very specific legal standard: stating that the director and the convicted hedge-fund founder are co-conspirators in a crime and the phone calls are a furtherance of that conspiracy. Well-established legal precedent allows statements of co-conspirators into evidence in trials, even if those statements might otherwise be considered inadmissible hearsay.

However, the defense lawyers say the government hasn't provided enough evidence to suggest they conspired together to commit a crime. Absent a showing of the director's involvement in those activities—which the government cannot make—whatever the convictd founder may have done with other people and other securities has no probative value in this case.

In addition, the defense lawyer said in the brief that the conversations on the wire taps—which occurred after the trades in question—had nothing to do with furthering the conspiracy.


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