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NEW YORK (Reuters) - Lawyers for former Goldman Sachs Group Inc(GS.N) board member Rajat Gupta sought to reverse his insider-trading conviction on Tuesday, arguing that wiretap evidence used by the prosecution should not have been introduced at trial.
Defense lawyer Seth Waxman told the 2nd U.S. Circuit Court of Appeals in New York that wiretaps played for the jury were inadmissible because they amounted to hearsay evidence.
Gupta himself was not heard on the wiretaps, which are instead conversations between convicted Galleon Group manager Raj Rajaratnam and other employees at the hedge fund.
"Those wiretaps should never have been admitted," Waxman told a three-judge panel of the appeals court.
The arguments marked a challenge to one of the highest-profile convictions in the U.S. government's crackdown on insider trading on Wall Street.
Gupta, 64, is a former head of the consultancy McKinsey & Co and a one-time board member at Goldman and Procter & Gamble Co(PG.N). He was sentenced to two years in prison in October for spilling confidential information about Goldman to Rajaratnam, his one-time friend who is now serving 11 years in prison for insider trading.
The 2nd Circuit in December said Gupta could remain free on bail while he appeals his conviction.
Gupta was convicted on one count of conspiracy and three counts of securities fraud in June 2012. The jury acquitted him on another two securities fraud counts.
While prosecutors charged Gupta in connection with four tips that they said he illegally provided to Rajaratnam, the jury convicted him of the only two that were supported by wiretaps of the hedge fund manager, Gupta's lawyers say.
In one recorded call on September 23, 2008, the jury heard Rajaratnam telling his principal trader that he had received a call that "something good might happen to Goldman."
Prosecutors sought to use the conversation to show that Gupta tipped Rajaratnam that billionaire Warren Buffett was going to invest $5 billion in the investment bank at the height of the financial crisis.
Multiple calls took place between Rajaratnam and Gupta that same day, including one shortly after a private Goldman board conference call about the Buffett investment. Rajaratnam moved to buy 200,0000 Goldman shares soon after that call.
But Waxman argued his client had another reason to phone the hedge fund titan as Gupta sought information about joint venture investment fund known as Voyager Capital Partners.
"In a life full of board meetings, he came out of meetings and returned calls," Waxman said of Gupta.
But Judge Jon Newman, one of the judges on the panel, questioned what a jury was supposed to conclude based on the close timing of Gupta's call and Rajaratnam's trading that day.
"Are you telling us that's a coincidence?" Newman asked.
A different call on October 23, 2008 drew close questioning by another judge on the panel, Rosemary Pooler, who asked whether it was properly admitted as evidence.
The recorded conversation was between Rajaratnam and David Lau, a portfolio manager at Singapore-based Galleon International.
Rajaratnam on the call said he "heard yesterday from somebody who's on the board of Goldman Sachs, that they are gonna lose $2 per share."
"He's sharing with Lau significant secret information that the public doesn't have," said Richard Tarlowe, a prosecutor arguing the case before the appeals court.
But Waxman said Lau had never been accused of being a co-conspirator, and Pooler appeared skeptical that the evidence showed the call was made to further the alleged conspiracy, as required for it to be admitted as hearsay evidence.
"I didn't see that in the conversation," she said.
Waxman also argued that one of Gupta's daughters, Geetanjali Gupta, was improperly barred at the trial from testifying about details of discord between Gupta and Rajaratnam.
The defense says she would have told jurors that her father said he was angry at Rajaratnam for allegedly taking money out of a joint investment fund known as Voyager Capital Partners without telling him.
Gupta's lawyers said this conversation occurred three days before one of the tips Gupta is accused of supplying and a month before a second one. The daughter's testimony would have called into question Gupta's motive to tip Rajaratnam, Waxman argued.
The case is U.S. v. Gupta, 2nd U.S. Circuit Court of Appeals, No 12-4448.
Reporting by Nate Raymond in New York; Editing by Martha Graybow, Bernard Orr