Ex-Goldman director charged in insider probe

Ex-Goldman director charged in insider probe

SAN FRANCISCO (MarketWatch) — The Securities and Exchange Commission said Tuesday it charged a former director of Goldman Sachs Group Inc. with passing information on upcoming earnings and a key investment by Warren Buffett to a hedge-fund billionaire.

Rajat Gupta, who served on the board at Goldman and Procter & Gamble Co.and was a friend of hedge-fund manager Raj Rajaratnam, tipped the Galleon Management founder with inside information about quarterly earnings at both companies, as well as an impending $5 billion investment by Berkshire Hathaway Inc. in Goldman Sachs, the regulator alleged.


Gupta got the inside information during conference calls held by the boards of Goldman and P&G, as well as from other duties he performed as a director of the companies, the SEC said.

Rajaratnam used the information to put trades on for Galleon hedge funds ahead of public announcements. He also shared the information with others at Galleon who also traded, the agency alleged. This insider trading generated more than $18 million in profits and losses avoided, it added.

Gupta was an investor in some of Galleon’s funds at the time and had “other potentially lucrative business interests with Rajaratnam,” the SEC also said.

“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” said Robert Khuzami, director of the SEC’s enforcement division, in a statement. “Directors who violate the sanctity of boardroom confidences for private gain will be held to account for their illegal actions.”

Gary Naftalis, a lawyer representing Gupta, called the allegations “totally baseless.” A spokesman for Goldman declined to comment.

“Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder,” Naftalis said in a statement. “There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo.”


Hedge funds’ peek into techSeparate from the Galleon case, the U.S. government late last year arrested five people for insider trading, alleging that the tech executives were passing sensitive information about Apple, Dell and others to hedge funds.
Gupta had a $10 million investment in a hedge fund run by Rajaratnam called the GB Voyager Fund. Gupta lost that entire investment, according to Naftalis. That negates “any motive to deviate from a lifetime of honesty and integrity,” the lawyer argued.

The charges against Gupta are the latest in a broad insider-trading investigation by the government that has yielded many guilty pleas.

Rajaratnam was arrested and charged with insider trading in 2009; he is fighting the charges. The case is scheduled to go to court this month. Read full coverage about Galleon and Rajaratnam’s arrest.

Berkshire deal
In the middle of the 2008 financial crisis, Goldman’s board had a conference call to consider and approve Berkshire’s $5 billion investment in the Wall Street firm and a big equity offering it was planning, the SEC said.

“Immediately” after the call, Gupta phoned Rajaratnam. Within a minute of that call, Rajaratnam got Galleon funds to buy more than 175,000 Goldman shares just before the stock market closed, according to the regulator.

source: marketwatch.com