Ex-Goldman director charged with insider trading

By Agence France-Presse
Tuesday, March 1, 2011 16:16 EDT
google plus icon
  • Print Friendly and PDF
  • Email this page

WASHINGTON – The US markets regulator charged former Goldman Sachs and Procter & Gamble director Rajat Gupta on Tuesda with insider trading in a high-profile hedge fund case.

The Securities and Exchange Commission announced the charges for “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 $5 billion investment by Berkshire Hathaway in Goldman.”

Gupta, “a friend and business associate of Rajaratnam,” provided him with confidential information he learned as a board member of Goldman and P&G, the SEC charged.

Rajaratnam allegedly 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 companies.

The insider trading by Rajaratnam and others produced more than $18 million in illicit profits and loss avoidance, the regulator said.

Gupta, a Connecticut-based business consultant and former managing director of global consulting firm McKinsey & Company, was at the time of the insider trading a direct or indirect investor in at least some of these Galleon hedge funds, according to the markets watchdog.

He also “had other potentially lucrative business interests with Rajaratnam.”

“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” SEC enforcement division chief Robert Khuzami said in a statement.

“Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”

Procter & Gamble announced that Gupta, who joined the board of directors in 2007, had “voluntarily” resigned Tuesday, effective immediately.

He “vigorously denied” the SEC’s accusations but stepped down “to prevent any distraction to the P&G board and our business,” Paul Fox, spokesman for the global pharmaceuticals and consumer products giant, told AFP.

P&G is “cooperating fully” with the investigation, he added.

According to the SEC, Gupta had tipped off Galleon that P&G would have lower-than-expected sales growth in the 2008 final quarter, allowing the hedge fund to pocket illicit profits of more than $570,000.

Gupta joined the Goldman board in November 2006 and served as a member of the Wall Street giant’s audit, compensation and corporate governance and nominating committees.

The bank’s announcement in March 2010 that Gupta, a senior partner at McKinsey, would not stand for re-election in March 2010 came amid speculation that he was a suspect in the insider-trading probe.

The Indian-born naturalized US citizen became chairman of the International Chamber of Commerce last July.

The Harvard Business School graduate has been affiliated with a number of organizations, including the United Nations, where former secretary-general Kofi Annan tapped him in 2005 as his special adviser for management reform.

The SEC has previously charged Rajaratnam and others in the widespread insider-trading scheme involving the Galleon hedge funds.

Billionaire Rajaratnam and co-defendant Danielle Chiesi were indicted in December 2009 by a federal grand jury in New York on charges of using non-public information from company executives to earn about $20 million in illegal profits.

Sri Lankan-born Rajaratnam has pleaded not guilty and is expected to stand trial next week.

Chiesi, a former consultant with New Castle Funds, pleaded guilty in January to three counts of conspiracy to commit securities fraud.

About 30 people have pleaded guilty in the affair.

Agence France-Presse
Agence France-Presse
AFP journalists cover wars, conflicts, politics, science, health, the environment, technology, fashion, entertainment, the offbeat, sports and a whole lot more in text, photographs, video, graphics and online.
By commenting, you agree to our terms of service
and to abide by our commenting policy.
  • Gimmie Shelter

    That’s one and counting.

  • Anonymous

    Two big Wall Street busts that I recall. Both seem to be either of Pakistani or Indian descent. Are they being targeted? Seems fishy to me. I don’t think this guy is innocent, by any means. I just wonder if there is selective enforcement where other crooks are being overlooked.

  • gypski®

    I hope he gets the maximum prison sentence and fined into bankruptcy.

  • Anonymous

    Chicken Curry Connection?

  • Anonymous

    Hey Raw Story! Knock off these stupid ads blocking reader’s comments!

  • Guest

    I’m shocked! Shocked. I tell you! White collar crime doesn’t exist in Amerika. Crime only exists in the nether world of the poor, drug-crazed, and “communities of color”. Surely this must be an error? (And DON’T call me Shirley)

  • http://twitter.com/btmfdrsheaven rebecca meritt

    I think you may be right. If the PCAOB is involved, it’s a conservative addition to the SEC. First director was CIA and when they wanted to dissolve PCAOB Justice Roberts came to the rescue. Anyone even remotely tied to the UN is an enemy of the repuggs.

  • Fedupin10


    Call me when they indict the MOTU.

  • Anonymous

    The problem is that all hedge funds and the entire cast of characters at Goldman, Lehman, Citi, JP Morgan, Chase, and probably half the lawyers at the SEC are involved with insider trading of one kind or another.

    According to Matt Taibbi’s latest article in Rolling Stone and his book on the financial crisis and other fraud, Goldman Sachs is short for insider trading.

  • Anonymous

    Don’t look now folks the sky is falling down, the US is actually gonna prosecute a white collar criminal. Now they just need to build a conveyor belt of prosecutions to catch up with all the fraud and crimes that were committed over the last 5 years or more.

  • Anonymous

    Yes, and as Taibbi’s piece pointed out, Khuzami’s SEC is simply now “a middle man,” acting as the “canary in the DOJ coalmine” for the financial perps to get a headsup and actual advice about possible tussles with the DOJ. Knowing this, it makes these Khuzami statements from the piece above seem even more ridiculous than they already are:

    “‘Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,’ SEC enforcement division chief Robert Khuzami said in a statement.”

    “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”

  • Anonymous

    Does anyone really believe that anything will come of this crime.
    Look what happen to Goldman Sachs and the crimes of other Banking criminals.

    This government not only emptied our U.S. federal Reserves into their pocket , the elected officials borrowed over $700 billion dollars on a credit card in our name and gave it to them.

    Who says crime does not pay.

    It certainly pays for these Global Empires & wealthy , they receive benefits from their crimes each day.

    Have we selected a real candidate to run in 2012 YET>.

    A Complete List of Goldman Sachs Crimes

  • iRead

    Note to spelling-challenged SEC employees:

    It’s spelled B-l-a-n-k-f-e-i-n, not G-u-p-t-a, you inept jagoffs.

  • Anonymous

    Sacrificial lamb.
    There are probably hundreds who did what he did or worse.
    Great they got one.
    Dozens at least would have been a good start, but
    most of what would have been a financial crime in the past has been legalized anyway.

  • Anonymous

    how telling that they go after a small fry.

  • Anonymous

    Oh my garsh!! An overcompensated wall street asshole “charged” with misdeeds? Hell is starting to freeze.

  • Anonymous

    Do any of you really think that there is any honor or trust from fiscal thieves and banking whores such as this?

    Again, and again, and again?

    They take YOUR money, they pay you nearly no interest, and all the while THEY CHARGE YOU for stupid fees THEY CAN AFFORD causing you to lose any ‘interest’ THEY SHOULD HAVE PAID TO YOU FOR YOU LENDING YOUR MONEY TO THEM!

    When will YOU put an end to this?

    They are Vampires on a bad hair day with a sun burn at best!

    There is nothing wrong with work. There is nothing wrong with saving. There is nothing wrong with playing the market with honest SAVED money when done so by good people.

    But when SOS such as this do these overly tired..lack of a decent word inserted here…things to OUR market over and over again, resulting in who knows what, what can or do we do?

    And Berkshire Hathaway? Isn’t that one of the richest person’s in the world holdings/investments company? As Count/Earl Tolstoy asked, “How much is enough?”–not that Warren Buffet had anything to do with the ass hat mentioned in the article.

    Sometimes, I think the gibbet or the catherine wheel is too good for some of them. I say let them live miserably, as they have made good people live miserably.

    Put them on a street corner asking for help with a placard that says: “Disabled Vet, lost house, home and family. Looking for Work. Save my family.”

    See how much empathy or sympathy they get….none.

  • Anonymous

    I think U hit the nail on the head w/ your last statement. All the well connected execs skate, while the little fish get fried. See the documentory “Inside Job” for more enlightenment.

  • H.P. Loathecraft

    The Few Bad Apples doctrine should appease public anger, no?

  • Gimmie Shelter

    Not likely since the whole thing is a swamp that needs to be drained. America is beginning to wake up to the assault that has been and being carried out on them from Wall St. and the rest.

    I would not want to be any of them when the full fury of the people turns against them and the rest of the greedy class.

  • H.P. Loathecraft

    Anyone in Justice who pursues either of those two or anyone else with any vigor will find their careers radically shortened. On the other hand, those that look the other way will find themselves in a rather successful and lucrative new career.

    Matt Taibbi: Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.

    Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country’s leading lawyers who represent Wall Street, as well as some of the government’s top cops from both the SEC and the Justice Department.

    Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it’s a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. “They were chummier in that environment,” says Aguirre, who plunked down $2,200 to attend the conference.

    Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn’t see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.

    Two of the government’s top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC’s current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street’s favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney’s office, before Mary Jo went on to become a partner at Debevoise. What’s more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.

    “It wasn’t just one rotation of the revolving door,” says Aguirre. “It just kept spinning. Every single person had rotated in and out of government and private service.”

    The fix is in.

  • H.P. Loathecraft

    True but it will never be the government exercising the will of the people. The opposite is true because they are, of course, one and the same. Only when the people hit the streets with pitchforks and torches will they begin to get nervous.
    That might seem far away right now but in the larger context, I view the revolution in the middle east and on the outer fringes of the EU to be a sign that this is the beginning of an unstoppable wave of worldwide protest that will eventually become impossible to ignore, even for the power elites in DC and their cronies in Manhattan.

  • Gimmie Shelter

    I hope you are right but those in power in this country have our population dumb down to the point where they have no idea what is in their best interest anymore.

    As far as we being one in the same as our government , that has not been true for a very long time and with each day that divide grows greater.

  • http://profiles.yahoo.com/u/3ETFGMQ3B7VD4AAMILBBEVMCWE JasonA

    Hang this SOB. Then confiscate all the money he has stolen times ten.