Rajat Gupta faces criminal charges
New York: Former Goldman Sachs director Rajat Gupta, one of the most prominent Indian-Americans in the country`s financial scene, is likely to surrender before authorities here today as prosecutors are expected to file criminal charges against him in a massive insider trading scheme.
A report in the New York Times quoted people briefed on the matter as saying that criminal charges would be filed against Gupta. The report quoted Gary Naftalis, a lawyer for 62-year-old Gupta, who said, "The facts demonstrate that Gupta is an innocent man and that he acted with honesty and integrity." "The case against Gupta would extend the reach of the government`s inquiry into America`s most prestigious corporate boardrooms. The charges would also mean a stunning fall from grace of a trusted adviser to political leaders and chief executives of the world?s most celebrated companies," it said.
Gupta was the former director of Goldman Sachs and Procter & Gamble and head of McKinsey & Company. He came under the scanner after prosecutors charged his friend Sri Lanka born hedge fund billionaire Raj Rajaratnam on insider trading charges. Rajaratnam has been sentenced earlier this month to 11 years in prison.
The NYT report said while there is no indication yet that Gupta profited directly from the information he passed to Rajaratnam, securities laws prohibit company insiders from divulging corporate secrets to those who then profit from them.
"The case against Gupta would tie up a major loose end in the long-running investigation of Rajaratnam?s hedge fund, the Galleon Group," the report said. "The legal odyssey leading to charges against Gupta could serve as a case study in law school criminal procedure class."
A native of Kolkata, Gupta had a meteoric rise to corporate success after he graduated from Harvard Business School. He advised business leaders including General Electric`s Jeffrey Immelt and Henry Kravis of the private equity firm Kohlberg Kravis Roberts & Company. He had also served as special adviser to the United Nations.
Gupta`s name emerged in the insider trading scheme a week before Rajaratnam`s trial in March, when the Securities and Exchange Commission filed an administrative proceeding against him. The agency accused Gupta of passing confidential information about Goldman Sachs and Procter & Gamble to Rajaratnam, who then traded on the information and profited from it.
Authorities said Gupta gave Rajaratnam confidential information of Warren Buffett?s five billion dollar investment in Goldman Sachs during the financial crisis. Federal prosecutors had named Gupta a co-conspirator but he was never charged.
During Rajaratnam`s trial, Goldman chief executive Lloyd Blankfein testified about Gupta`s role on the board and the secrets he was privy to, including earnings details and the bank`s strategic deliberations, the report said.
Gupta fought the S.E.C.`s civil action, saying that the proceeding denied him of his constitutional right to a jury trial and treated him differently than the other Rajaratnam-related defendants.
The SEC charges against Gupta were dropped in August, but the regulatory authority said it still has the right to bring an action in federal court. SEC is expected to file a new civil case against Gupta.
At Rajaratnam`s trial, the government had played a recorded conversation between Gupta and Rajaratnam in July 2008 during which Gupta had divulged that Goldman was considering a purchase of either Wachovia or American International Group.
Two of the most incriminating calls played in court pertained to tips that the government said had come from Gupta. In one call played for the jury, Rajaratnam told a colleague, "I heard yesterday from somebody who`s on the board of Goldman Sachs that they are going to lose USD 2 per share." In the other, he said to a trader, "I got a call saying something good is going to happen to Goldman."
The SEC`s original case provided evidence that could be used at trial against Gupta, including his phone records of September 23, 2008 when the Goldman board had met via telephone to consider Buffett`s usd 5 billion investment in the financial giant. "Immediately after disconnecting from the board call, Gupta called Rajaratnam from the same line," the SEC filing says. A minute later, Galleon funds bought more than 175,000 shares of Goldman just before the market closed, making a USD 900,000 profit when the deal was announced.
Around the time of his retirement in 2007, Gupta and Rajaratnam helped start private equity firm New Silk Route focused on investments in India.
Gupta periodically visited Rajaratnam`s hedge fund Galleon in Midtown Manhattan. "The two would order Indian or Chinese takeout and kibitz in Rajaratnam`s office," the NYT report said.
Gupta became an investor in Galleon`s hedge funds.