- Last Updated: 3:14 AM, June 5, 2012
- Posted: 11:24 PM, June 4, 2012
Lloyd Blankfein said something yesterday on the witness stand in Manhattan federal court that was a bombshell.
Few people in court probably even heard the statement, but it could, ultimately, lead to Blankfein’s own undoing.
The chairman of Goldman Sachs was testifying at the trial of Rajat Gupta, who sat on Goldman’s board of directors and is accused by the government of leaking sensitive, confidential information to his pal, hedge fund manager Raj Rajaratnam.
Rajaratnam has already been convicted of insider trading and now the government would like Gupta to share a cell with him.
Prosecutors called Blankfein as a witness in the case, and about an hour into his mind-numbing testimony the Goldman chief was asked if he kept his board of directors informed about things going on at the firm during the 2008-9 financial crisis.
The government was on its way to showing that whenever the earnings projections for Goldman changed, Blankfein would tell his board. When prosecutors get around to it in the coming days, they will make the case that once Gupta found out these secrets he turned right around and told Rajaratnam.
But that’s not the bombshell. This statement is: “There were a lot of external events that were affecting the fortunes of the firm,” Blankfein said, adding that he felt obliged to keep his board of directors and various committees informed.
Taken in a vacuum, this is a rather innocuous statement. Of course the chairman of a major firm was going to keep his board and management informed about what he knew.
But, as readers of this column already understand, Blankfein held a very special position during the financial crisis. He was plugged into the highest levels of government like nobody else.
As I’ve documented, Blankfein and US Treasury Secretary Hank Paulson shared an unusual bond and spoke frequently on the phone. On one particular chaotic day on Wall Street, Paulson, who was also once the head of Goldman, spoke with Blankfein only one less time than he spoke with Federal Reserve Chairman Ben Bernanke.
I think Paulson gave out sensitive information during the financial crisis to Goldman Sachs (and maybe others) because he wanted to keep the financial markets from collapsing. Washington, in short, was rigging the markets.
I think Paulson’s intentions were honorable — national security, and all that.
But I also think prosecutors need to look into whether the recipients of that information acted honorably and did not enrich themselves while pretending to be well-intentioned.
I think prosecutors need to look into Goldman’s trades right after phone calls between Blankfein and Paulson. And they need to see if any other Goldman directors shared information.
And here’s the punch line, I think prosecutors are doing just that.