By Chad Bray and Reed Albergotti Former Goldman Sachs Group Inc. (GS) director Rajat Gupta and hedge-fund manager Raj Rajaratnam had a dispute about their joint investment in a fund managed by Mr. Rajaratnam's Galleon Group as far back as 2007, a former Galleon employee testified Wednesday. The timing of a falling out between the two men over the fund, Voyager Capital Partners Ltd., has been a key point of contention between defense attorneys and the prosecution at Mr. Gupta's insider-trading trial. Mr. Gupta's lawyers contend he had lost his entire $10 million investment in the fund and had a falling out with Mr. Rajaratnam-at the same time prosecutors allege he was secretly passing confidential information about Goldman to Mr. Rajaratnam at the height of the financial crisis in 2008. Testifying as a government witness, Isvari Mahadeva, a former Galleon portfolio manager, said she was asked sometime in 2007 to review an agreement in which Mr. Gupta had the option to increase his investment in Voyager because of a dispute over how profits should be allocated in the fund. She testified that Mr. Gupta said he should be entitled to profits on his larger stake dating back to Voyager's inception. "How many disagreements are you aware of between Mr. Rajaratnam and Mr. Gupta regarding Voyager?" Assistant U.S. Attorney Richard Tarlowe said "Just the one," Ms. Mahadeva said. Federal prosecutors in Manhattan have alleged that Mr. Gupta, also a former director of Procter & Gamble Co. (PG), shared confidential information he learned as a board member at Goldman and P&G with Mr. Rajaratnam, who was convicted of insider-trading charges and sentenced to more than 11 years in prison last year. Ms. Mahadeva's testimony, coming on the 11th day of Mr. Gupta's trial on conspiracy and securities-fraud charges, appeared to be designed to bolster the prosecution's contention that Mr. Gupta, the former head of consulting firm McKinsey & Co., tipped Mr. Rajaratnam because of their friendship and to further their business dealings. Mr. Gupta has pleaded not guilty to the charges. According to documents displayed in court, Mr. Gupta initially invested $5 million in the fund. Mr. Rajaratnam invested $40 million and Ravi Trehan, the founder of hedge-fund BroadStreet Group, invested $5 million. The fund, formed in 2005, then borrowed $50 million from Swiss Re and $300 million from Lehman Brothers Holdings Inc., giving it $400 million in capital to invest, Ms. Mahadeva said. However, Mr. Rajaratnam bought Mr. Trehan out after a dispute, and Mr. Gupta was given the option to invest another $5 million, which he could exercise by Dec. 31, 2006, Ms. Mahadeva said. Voyager had invested in a number of funds managed by BroadStreet and Galleon, including six Galleon funds as of January 2006, according to one document entered into evidence by prosecutors. Twenty-one months later, when Mr. Gupta allegedly tipped Mr. Rajaratnam about Goldman's third-quarter 2007 results, four of those Galleon funds owned Goldman shares, according to an internal Galleon risk report from September 2007. After exercising the option, Mr. Gupta and Mr. Rajaratnam had a dispute over when profits on Mr. Gupta's larger investment would accrue: the inception date of the fund or when he actually exercised the option, Ms. Mahadeva said. Ultimately, Mr. Rajaratnam determined that Mr. Gupta's stake was worth $16.4 million as of December 31, 2007. The fund initially made money, but began to steadily decline as time went on, according to documents entered into evidence by prosecutors. As of Dec. 31, 2006, the Voyager stake owned by Mr. Gupta and Mr. Rajaratnam was valued at $90.4 million, according to court documents. By March 31, 2008, it had declined to only $49.2 million. Anil Kumar, a former McKinsey consultant and cooperating witness, testified Monday that Mr. Gupta expressed concerns about Mr. Rajaratnam's management of his money in the fall 2008 and that he wanted Mr. Rajaratnam to make him "whole" on his Voyager investment. Mr. Gupta told him he was considering suing Mr. Rajaratnam in February or March 2009, shortly after the last alleged instance of insider trading between the two men, Mr. Kumar said. Mr. Kumar has pleaded guilty to criminal charges. However, Mr. Gupta's lawyers, in questioning of Ms. Mahadeva, tried to show that Mr. Gupta never redeemed any money from the fund. They pointed to an internal Galleon document that appeared to show Mr. Rajaratnam took out $25.2 million in December 2007, which they say was part of the dispute with Mr. Rajaratnam. "You don't know whether Mr. Gupta ever withdrew any of his money from the Voyager investment?" asked Robin Wilcox, one of Mr. Gupta's lawyers. "I don't," Ms. Mahadeva said.