Indian American charged with insider trading, denies wrong

Lalit K Jha
Washington, Mar 2, (PTI) The US markets regulator has
charged Indian-American Rajat K Gupta, a former board member
of Goldman Sachs and Proctor and Gamble, with insider trading,
accusing him of providing confidential information to the key
figure in a major hedge fund probe.
The Security and Exchange Commission (SEC) accused Gupta
(62) of illegally tipping Galleon Management founder and hedge
fund manager Raj Rajaratnam with inside information about the
quarterly earnings at both firms as well as an impending USD 5
billion investment by Berkshire Hathaway in Goldman.
The insider trading by Rajaratnam and others generated
more than USD 18 million in illicit profits and loss
avoidance, it said.
Gupta, a Harvard Business School graduate, however
rubbished charges of insider trading against him as "baseless"
with his lawyer asserting that his conduct and integrity were
"beyond reproach".
SEC alleged that Gupta, a friend and business associate
of Sri Lankan-born Rajaratnam, provided him with confidential
information learned during board calls and in other aspects of
his duties on the Goldman and P&G boards.
Rajaratnam used the inside information to trade on
behalf of some of Galleon's hedge funds, or shared the
information with others at his firm who then traded on it
ahead of public announcements by the firms, it said.
Gupta was at the time a direct or indirect investor in
at least some of these Galleon hedge funds, and had other
potentially lucrative business interests with Rajaratnam, SEC
said.
"Gupta was honoured 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 Division of Enforcement.
"Directors who violate the sanctity of board room
confidences for private gain will be held to account for their
illegal actions," he said.
SEC alleges that while a member of Goldman's Board
of Directors, Gupta tipped Rajaratnam about Berkshire
Hathaway's USD 5 billion investment in Goldman and Goldman's
upcoming public equity offering before that information was
publicly announced on September 23, 2008.
Gupta called Rajaratnam immediately after a special
telephonic meeting at which Goldman's Board considered and
approved Berkshire's investment in Goldman Sachs and the
public equity offering, it alleged.
Within a minute after the Gupta-Rajaratnam call and
just minutes before the close of the markets, Rajaratnam
arranged for Galleon funds to purchase more than 175,000
Goldman shares, it said.
Rajaratnam later informed another participant in the
scheme that he received the tip on which he traded only
minutes before the market close, it alleged.
"The SEC's allegations are totally baseless," Gary
Naftalis, Counsel for Gupta, said in a statement to PTI.


"Mr Gupta's 40-year record of ethical conduct,
integrity, and commitment to guarding his clients' confidences
is beyond reproach," Naftalis said.
Naftalis said Gupta has done nothing wrong and is
confident that the "unfounded allegations" will be rejected by
any fair and impartial fact finder. "There is no allegation
that Mr Gupta traded in any ofthese securities or shared in
any profits as part of any quidpro quo."
"In fact, Mr Gupta had lost his entire USD10 million
investment in the GB Voyager Fund managed by Rajaratnam at the
time of these events, negating any motive to deviate from a
lifetime of honesty and integrity," Naftalis said in defence
of his client.
Rajaratnam has pleaded not guilty and is expected to
stand trial next week.
Rajaratnam caused the Galleon funds to liquidate
their Goldman holdings the following day after the information
became public, making illicit profits of more than USD
900,000, SEC said.
Gupta also illegally disclosed to Rajaratnam inside
information about Goldman Sachs's positive financial results
for the second quarter of 2008.
Goldman Sachs CEO Lloyd Blankfein called Gupta and
various other Goldman outside directors on June 10, when the
company's financial performance was significantly better than
analysts' consensus estimates, the SEC said.
Blankfein knew the earnings numbers and discussed
them with Gupta during the call.
"Between that night and the following morning, there
was a flurry of calls between Gupta and Rajaratnam. Shortly
after the last of these calls and within minutes after the
markets opened on June 11, Rajaratnam caused certain Galleon
funds to purchase more than 5,500 out-of-the-money Goldman
call options and more than 350,000 Goldman shares," SEC said.
"Rajaratnam liquidated these positions on or around
June 17, when Goldman made its quarterly earnings
announcement. These transactions generated illicit profits of
more than USD 13.6 million for the Galleon funds," it said.
SEC also alleges that Gupta tipped Rajaratnam with
confidential information that he learned during a board
posting call about Goldman's impending negative financial
results for the fourth quarter of 2008.
The call ended after the close of the market on
October 23, with senior executives informing the board of the
company’s financial situation.
"Mere seconds after the board call, Gupta called
Rajaratnam, who then arranged for certain Galleon funds to
begin selling their Goldman holdings shortly after the
financial markets opened the following day until the funds
finished selling off their holdings, which had consisted of
more than 120,000 shares," Sec alleged.
"In discussing trading and market information that
day with another participant in the insider trading scheme,
Rajaratnam explained that while Wall Street expected Goldman
Sachs to earn USD 2.50 per share, he had heard the prior day
from a Goldman Sachs board member that the company was
actually going to lose USD 2 per share.
"As a result of Rajaratnam's trades based on the
inside information that Gupta provided, the Galleon funds
avoided losses of more than USD 3 million," SEC said.