Gupta, who is accused by the Securities and Exchange Commission (SEC) of passing insider information to Rajaratnam, denies wrongdoing and has sued the US regulator.
The SEC has alleged that Gupta tipped off Rajaratnam about an imminent USD 5 billion dollar investment in Goldman by Warren Buffett in 2008, and that he also provided the quarterly earnings of Goldman and Proctor and Gamble, where he also served as a director.
Last week, prosecutors played a secretly recorded phone conversation on July 25, 2008 in which Gupta tells the Galleon Group founder that the firm is discussing buying Wachovia or American International Group (AIG).
"This was a big discussion at the board meeting," Gupta said during the call. It was a divided discussion." Blankfein replied "yes" when he was asked by the prosecution whether Gupta violated confidentiality policy in the call about the possible acquisition.
He read out guidelines, which the directors were required to adhere to, including, "directors must maintain the confidentiality of all information so entrusted to them." Blankfein said that besides the confidentiality policy, directors also had the duty of putting the interest of the firm first.
When asked if Gupta had violated this duty, he responded, "my sense of it yes." During cross-examination, Blankfein said that the Galleon's relationship with Goldman Sachs was an important one.
"I know it was a prominent client for Goldman Sachs," he said.
When asked whether Gupta was viewed as "highly esteemed individual" in the business world, Blankfein said "yes". Rajaratnam is accused of making more than USD 45m by illegally trading on insider information.
His lawyers say that Rajaratnam conducted his business based on information that was already in the public domain and through research.
Out of the 26 people arrested in this case, 19 have pleaded guilty. The 53-year-old Sri Lankan-born billionaire, however, denies any wrongdoing. He could face up to 20 years in prison, if found guilty.
Earlier in the day, Rajaratnam's defence lawyer, John Dowd, told the judge that he would not question Blankfein about other legal proceedings involving Goldman Sachs.
Dowd tried to convince the jury that the information Rajaratnam and Gupta talked about was already in the media.