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Basil Katz and Moira Herbst report: "A former Goldman Sachs board member linked to a massive hedge fund insider trading case is set to surrender to face criminal charges in New York City. Two people with inside knowledge of the case confirmed that Rajat Gupta was expected to appear in federal court in Manhattan on Wednesday."

Former Goldman Sachs Group Inc. director, Rajat Gupta, 03/09/08. (photo: Reuters)
Former Goldman Sachs Group Inc. director, Rajat Gupta, 03/09/08. (photo: Reuters)

Ex-Goldman Sachs Director to Face Criminal Charges

By Basil Katz and Moira Herbst, Reuters

26 October 11


Rajat Gupta will surrender to FBI Wednesday - was named an unindicted co-conspirator of Raj Rajaratnam. Gupta's lawyer has no comment on possible charges, reiterates that Gupta committed no wrongdoing.

former Goldman Sachs director, who also was once the global head of elite consultancy McKinsey & Co, will surrender to the FBI on Wednesday to face criminal insider trading-related charges, a person familiar with the investigation said.

Rajat Gupta, one of the most prominent business executives to be caught up in the government's wide-ranging insider-trading probe, had been named by prosecutors as an unindicted co-conspirator in the criminal case against hedge fund tycoon Raj Rajaratnam earlier this year.

The person familiar with the investigation, who declined to be identified because the charges have not yet been made public, said Gupta had agreed to surrender to authorities.

Gupta's attorney, Gary Naftalis, would not comment late Tuesday on possible criminal charges, but he issued a statement echoing his previous comments that Gupta committed no wrongdoing.

"Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."

Rajaratnam, founder of the Galleon Group hedge fund, was convicted in May by a New York federal jury after a two-month trial.

On Oct. 13, a judge sentenced him to 11 years in prison, the longest recorded for insider trading. Rajaratnam is under house arrest and was ordered to report to prison on Nov. 28.

Gupta, 62, well-known in the business world after 34 years at McKinsey, had won a seat in 2006 on the board of Goldman. He retired from McKinsey in 2007.

Goldman Chief Executive Officer Lloyd Blankfein was called to the witness stand by the government to testify at Rajaratnam's trial in Manhattan federal court.

Blankfein told the jury that Gupta violated confidentiality at Wall Street's most powerful bank by leaking boardroom secrets.

Ellen Davis, a spokeswoman for Manhattan US attorney Preet Bharara, whose office prosecuted Rajaratnam, declined to comment on Gupta's surrendering to authorities or any possible charges.

In August, Gupta and the US Securities and Exchange Commission agreed to drop litigation against each other stemming from the sprawling Galleon probe, which has ensnared money managers, traders and corporate executives.

The SEC had said Gupta passed illegal tips to Rajaratnam about Goldman, including a possible multibillion dollar investment from Warren Buffett, as well as tips about Procter & Gamble Co, where Gupta was also a director.

While the SEC said in August it would dismiss its administrative proceeding against Gupta, the agency said it could still bring a case against him in a federal district court.

Phone Taps

The investigation of Sri Lankan-born Rajaratnam was notable for the use of FBI phone taps. The probe ensnared several of the Galleon Group founder's South Asian friends and associates. Gupta was born in India.

The Rajaratnam trial punctured McKinsey's prized reputation for closely guarding client confidentiality -- former McKinsey executive Anil Kumar pleaded guilty to criminal charges and testified against Rajaratnam.

At the trial, prosecutors played recordings in which Rajaratnam was heard discussing information he received from Gupta about Goldman Sachs.

In one recording dated Oct. 24, 2008, Rajaratnam was heard calling David Lau, chief of Galleon's Singapore branch, and discussing a tip he got from a board member that Goldman was on its way to a surprise fourth-quarter loss, its first as a public company.

The call comes one day after the investment bank held a board meeting discussing the loss, prosecutors said.

"I just heard from somebody who's on the board of Goldman Sachs, they are gonna lose $2 per share," Rajaratnam was heard saying. "So what he (the board member) was telling me was that, uh, Goldman, the quarter's pretty bad."

(Additional reporting by Grant McCool; editing by Martha Graybow, Carol Bishopric, Gary Hill and Vinu Pilakkott.) your social media marketing partner


0 # iris 2011-10-26 11:43
finally the rats go to jail but will the ditizens be reimbursed?
-1 # 2011-10-26 13:00
By all accounts, Gupta did not personally financially benefit in any way from any discussion of "inside information". There is speculation that this prosecution is "payback" for his earlier refusal to accept a plea bargain on another charge and his insistence that he receive a jury trial.

I even think George Soros is innocent of his insider trading conviction in France even though he did clearly benefit financially from the information he had received about a proposed buyout.

Convicting people of such an ill-defined crime (what is and what is not "insider trading" is always very subjective) leads to prosecutorial abuse and harassment by envious or power-hungry politicians and regulators.

Let's define the crime more clearly before we start throwing people in jail over it.

Lee Nason
New Bedford, Massachusetts
+1 # noitall 2011-10-26 13:54
Thank gawd they found a Brownie.
0 # RLF 2011-10-27 05:19
They do seem to be going after only the foreign born perps! Send them home to make room for your own SEC ass at the firm.
+2 # noitall 2011-10-26 13:58
They better hurry and take care of WikiLeaks for good before more beans are spilled.
0 # erogers 2011-10-26 14:11
Someone must have really screwed up. Wait until Geitner finds out a Goldman Sachs director is facing criminal charges. Heads will roll. Are you sure the story is correct. This guy cannot be a high paid director, he must be the head of the janitorial staff. After all, this is the invincible Goldman Sachs we are talking about. These crooks are protected.
-1 # 2011-10-26 20:04
Apologies to all regarding a bit of misinformation in my previous post (second above). Gupta has been shown to have reaped some level of financial benefit from the incident in question. How much is not yet clear.

My other points -- concerning the possibility that this prosecution is an example of government harrassment, that the crime of insider trading is ill-defined, and that George Soros is, in my view, innocent of the insider trading crime that he was convicted of in France -- remain valid.

Lee Nason
New Bedford, Massachusetts

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