Rajaratnam’s squid by association defense

March 23, 2011, 9:45 PM UTC

Raj Rajaratnam’s defense lawyer is working the guilt-by-association angle hard – for Goldman Sachs, that is.

Fortune’s Katie Benner fills us in from the U.S. District Courthouse on Foley Square in Manhattan:

Rajaratnam’s attorney, John Dowd, towers over Goldman Sachs (GS) chief Lloyd Blankfein. That fact was readily apparent when Dowd started his cross examination Wednesday, even if Dowd did open by promising not to waste Blankfein’s valuable time.

Beset by vampire squid?

But make no mistake, Dowd wants jurors to see Goldman as the giant player in the Galleon insider trading case, no matter how long it takes to establish that idea – which runs contrary to the picture the government has drawn.

Dowd’s questioning of Blankfein seems to imply Goldman, which fairly or otherwise is probably the most notorious bank in America, implicitly condoned the alleged insider trading in its shares.

Dowd asked Blankfein a dozen different ways about Goldman’s relationship with Galleon, the hedge fund Rajaratnam founded. Rajaratnam could face 20 years in jail if convicted on the government’s charge that he made off with $45 million by making illegal insider trades.

Blankfein testified earlier Wednesday that a director who allegedly tipped off Rajaratnam on decisions made at Goldman board meetings broke his promise to keep the proceedings in confidence. But Dowd suggested Goldman’s relationship with Galleon runs far deeper than the link between ex-director Rajat Gupta and Rajaratnam.

Dowd asked Blankfein if Galleon bought Goldman research and analysis, or used its prime brokerage services, to which Blankfein said yes. Dowd then said Galleon was a big customer of Goldman’s, and a big investor in the firm – so can Goldman really claim it didn’t know what was going on with Galleon’s trading in the firm’s stock?

Blankfein responded he was “not in a position to know” whether Galleon was an owner of the investment bank’s stock. Asked by Dowd whether Goldman pays attention to its investors, Blankfein responded that the firm does but has “tens of thousands” at any given time.

Dowd also pushed Blankfein to explain what Goldman was up to during the financial crisis of 2008, seemingly for the sake of undermining his credibility before the jury.

Discussing market rumors in the summer of 2008 that Goldman might buy the teetering Wachovia bank, Dowd prompted Blankfein to look over the minutes of a Goldman board meeting that included a strategy review of possible Goldman acquisitions.

Blankfein blanched at being handed the document, which he said ran to 10 single-spaced pages.* “Take your time,” Dowd replied — suggesting his earlier apologies for imposing on Blankfein’s busy schedule were not, get this, completely genuine.

*Earlier I wrote a hundred pages. Only off by a factor of 10, etc.

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