Hedge fund founder Raj Rajaratnam's trial defense on Tuesday tried to deflect prosecution evidence that he traded on inside information about Wall Street's most influential bank, Goldman Sachs Group Inc, at the height of the 2008 financial crisis.

Former Galleon chief operating officer Rick Schutte testified that well before the government contends Rajaratnam was tipped to a $5 billion investment in Goldman, discussions were already under way about what positions to take in the bank in light of the looming market crisis.

Schutte described a lunch on July 31, 2008, with Rajaratnam, Goldman president Gary Cohn and others during his second day of testimony at Rajaratnam's insider trading trial in Manhattan federal court.

Did you hear any discussion of any inside information? a defense lawyer, Michael Starr, asked Schutte.

No, I do not believe so, replied Schutte, who was a computer hardware analyst at Goldman Sachs for 10 years before joining Galleon in June 2004.

The defense began its side of the case on Monday after five weeks of government evidence, including FBI phone taps, that was aimed at showing that Rajaratnam got illicit stock tips to make $63.8 million from 2003 until March 2009.

The allegations include trades in Goldman earnings in July and December 2008 and on Warren Buffett's Berkshire Hathaway Inc's $5 billion investment in Goldman announced on September 23, 2008.

Starr showed the jury email from Cypress Group research firm in Washington, D.C., on September 23, 2008, saying legislation on a government bailout of banks would pass in the next couple of days.

Rajaratnam's defense lawyers argue that he based his trades on that and other research -- not tips from then Goldman director Rajat Gupta, as the government contends. Gupta has denied civil charges in the case and has not been criminally charged.

In a government case built on wiretapped phone conversations and testimony of former associates who pleaded guilty, Sri Lankan-born Rajaratnam faces up to 20 years in prison on the most serious charge of securities fraud, if convicted.

Goldman Sachs chief executive Lloyd Blankfein testified for the government at the trial on March 23. He said Gupta violated bank confidentiality rules by leaking boardroom secrets to Rajaratnam.

Meanwhile, Rajaratnam hopes a Superman will be able to help him win over the jury later this week. The judge ruled on Tuesday that American social activist and educator Geoffrey Canada, who appeared in the award-winning 2010 documentary film Waiting for 'Superman' can take the witness stand to attest to Rajaratnam's character.

His Harlem Children's Zone in New York has benefited from the Galleon Group founder's philanthropy and board service. Canada, along with other nationally known figures such as Microsoft founder Bill Gates, appeared in the film that won a best documentary award at the 2010 Sundance Film Festival.

I will allow the character witness because the government itself has raised the issue of alleged greed by the defendant, U.S. District Judge Richard Holwell said when jurors were not present in the Manhattan courtroom.

The chief defense lawyer, John Dowd, had asked the judge on Monday if he could call Canada because prosecutor Jonathan Streeter told jurors at the trial's opening on March 9 that the case was about greed and corruption.

Dowd said jurors should also hear about Rajaratnam's philanthropy.

The defense has not said whether it would call Rajaratnam to testify.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

(Reporting by Grant McCool, editing by Dave Zimmerman, Gary Hill)