The Federal Bureau of Investigation (FBI) on June 15, 2012 released the following:
“Gupta Convicted on Four Counts Arising from an Insider Trading Scheme in which He Provided Confidential Information About Goldman Sachs to His Business Partner and Friend, Raj Rajaratnam
Preet Bharara, the United States Attorney for the Southern District announced that Rajat K. Gupta, former corporate chairman of an international consulting firm and a member of the Boards of Directors of The Goldman Sachs Group Inc. (“Goldman Sachs”) and the Procter & Gamble Company (“P&G”), was found guilty today by a jury in Manhattan federal court of conspiracy and securities fraud crimes stemming from his involvement in an insider trading scheme with his business partner and friend, Raj Rajaratnam, the founder and former head of the Galleon Group.
Manhattan U.S. Attorney Preet Bharara stated, “Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away. Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell. Violating clear and sacrosanct duties of confidentiality, Mr. Gupta illegally provided a virtual open line into the board room for his benefactor and business partner, Raj Rajaratnam.
“Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief. It bears repeating that, in coordination with our extraordinary partners at the FBI, we will continue to pursue those who violate the securities laws, regardless of status, wealth, or influence. I thank the members of the jury for their time, attention, and service, and the dedicated career prosecutors from my office who so ably tried this case.”
According to the superseding indictment filed in Manhattan federal court, other court documents, statements made at trial, and court proceedings:
During all relevant times, Gupta and Rajaratnam maintained a close personal and business relationship. Among other things, Gupta described Rajaratnam as a close friend; Gupta invested his money in Galleon funds while he served as chairman of the international consulting firm; Gupta co-owned a fund of funds with Rajaratnam, which invested its money in Galleon funds; Gupta served as chairman of a $1.5 billion private equity firm called NSR in which Rajaratnam invested approximately $50 million and served on the investment committee; and Gupta was given the position of Chairman of Galleon International in 2008 and expected to receive 15 percent of that fund’s performance fees.
From 2007 through January 2009, Gupta repeatedly disclosed material, non-public information (“inside information”) that he acquired in his capacity as a member of the Board of Directors of Goldman Sachs, with the understanding that Rajaratnam would use the inside information to purchase and sell securities. Rajaratnam, in turn, caused the execution of transactions in the securities of Goldman Sachs on the basis of the inside information and shared the inside information with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars. On separate occasions that were proven at trial, Gupta gave Rajaratnam inside information that included highly sensitive and secret information. Illegal tips that were proven at trial include the following:
The September 23, 2008 Goldman Sachs Tip
The evidence at trial proved that, on September 23, 2008, within approximately 60 seconds after the conclusion of a Goldman Sachs telephonic board meeting in which the Board approved a $5 billion investment by Berkshire Hathaway, Gupta spoke with Rajaratnam. Immediately following the call, Rajaratnam directed two separate traders to purchase approximately $43 million of Goldman Sachs stock within minutes before the close of trading. During two court-authorized wiretapped conversations the following morning on September 24, 2008 between Rajaratnam and his principal trader and coconspirator, Ian Horowitz, Rajaratnam said that he received a call at 3:58 p.m. the day before telling him “something good’s gonna happen” at Goldman Sachs, that he directed the two traders to buy Goldman shares before the market closed, and that he could not yell this information out on Galleon’s trading floor. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam and co-conspirator Gary Rosenbach earned over $1 million in illegal profits.
The October 23, 2008 Goldman Sachs Tip
The evidence at trial proved that, on October 23, 2008, Gupta participated on a Goldman Sachs Board posting call during which he learned that Goldman Sachs was losing money for the quarter, which Goldman Sachs had never done since becoming a public company. Just 23 seconds after that call ended, Gupta called Rajaratnam. Following that call, at the first available opportunity after the stock market reopened, Rajaratnam started to sell his entire holdings in Goldman Sachs stock. Later that day, during a court-authorized wiretapped conversation, Rajaratnam explained to a senior portfolio manager at Galleon International that Rajaratnam had spoken with a member of the Board of Goldman Sachs and learned that Goldman Sachs was losing money during the quarter while Wall Street analysts expected the company to make money. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam was able to avoid losses of several million dollars.
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Gupta, 63, of Westport, Connecticut, was found guilty of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was acquitted on two securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million. Gupta will be sentenced on October 18, 2012.
Rajaratnam was convicted in a jury trial on May 11, 2011 of 14 counts of conspiracy and securities fraud. He was sentenced on October 13, 2011 to 11 years in prison and was ordered to pay forfeiture in the amount of $53,816,434 and a $10 million fine.
Mr. Bharara praised the outstanding efforts of the FBI. He also thanked the SEC for its assistance in the investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
Assistant U.S. Attorneys Reed Brodsky and Richard C. Tarlowe are in charge of the prosecution.
– Statement by FBI New York Assistant Director in Charge Janice K. Fedarcyk on Gupta’s conviction”
Douglas McNabb – McNabb Associates, P.C.’s
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