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Feds probing insider trading by Goldman exec

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(CBS/AP) WASHINGTON — A lawyer for Goldman Sachs (GS) investment banker Matthew Korenberg confirmed Thursday that his client is the subject of a long-running probe by federal prosecutors in California.

But attorney John Hueston said the probe of Korenberg is unrelated to high-profile insider-trading prosecutions in New York centered around the defunct Galleon Group hedge fund.

The investigation of Korenberg involves allegations of insider trading related to a health care deal, according to another person familiar with the case. The person spoke on condition of anonymity because he wasn't authorized to discuss it publicly.

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Hueston said the New York prosecutors were referring to the investigation of Korenberg. But he said they were mistaken to link his client to the Gupta prosecution.

A week ago, New York prosecutors notified lawyers for former Goldman Sachs board member Rajat Gupta, who is accused of insider trading, of a separate investigation in California. This probe involved a current Goldman Sachs employee, believed to have given inside information to Raj Rajaratnam, the founder of Galleon. The name of the employee was not disclosed.

"The government has mischaracterized the nature of the other investigation, and this has led to an appearance of overlap or connection that simply does not exist," said Hueston, who practices with the firm Irell & Manella LLP in Los Angeles.

Earlier Thursday, a story on The New York Times' website identified Korenberg as reportedly being under investigation for leaking information to Galleon Group about health care deals.

Hueston said he is confident that the probe of Korenberg will be terminated without any charges. He called the probe a "two-and-a-half year fishing expedition that has led to nothing."

In an e-mailed statement, Goldman Sachs appeared to back Hueston's defense of his client.

"We have been aware of these allegations for more than two years, investigated them, fully cooperated with federal authorities in the matter, and Matt Korenberg remains actively employed by the firm," the statement said.

Gupta is accused of passing secret information from Goldman board meetings to Galleon founder Raj Rajaratnam. By disclosing the probe of Korenberg, the prosecutors gave Gupta's lawyers an avenue to argue that Galleon had multiple sources at Goldman for inside information. That might make it harder to pin the wrongdoing on Gupta.

Gupta's lawyer, Gary P. Naftalis, declined to comment through a spokeswoman. Prosecutors also declined to comment.

Gupta's defense team was notified separately several weeks ago that a Goldman Sachs executive was giving inside information to Rajaratnam about Apple Inc. and Intel Corp.

Rajaratnam is serving an 11-year prison sentence, the longest ever handed out in an insider trading case. A jury found him guilty on charges that he made more than $70 million illegally by using information gleaned from a network of informants at public companies and fellow hedge fund traders.

Gupta, who also served on the board of Procter & Gamble Co., is scheduled to go on trial May 21. He is free on $10 million bail.

In all, more than two dozen people were charged in the Rajaratnam probe. All except Gupta have pleaded guilty or been convicted at trial.

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