Ex-Goldman director charged with insider trading

By Agence France-Presse
Tuesday, March 1, 2011 16:16 EDT
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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
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  • 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.