S.E.C. Told to Share Notes in Insider Trading Case

March 28, 2012

The New York Times on March 27, 2012 released the following:

“BY PETER LATTMAN

A federal judge has ordered Securities and Exchange Commission lawyers to turn over their notes to federal prosecutors handling the criminal case against Rajat K. Gupta, a former director of Goldman Sachs.

The ruling was part of a flurry of pretrial orders from Judge Jed S. Rakoff, who is presiding over the case.

Mr. Gupta, who is charged with leaking Goldman’s boardroom secrets to his friend, the convicted hedge fund manager Raj Rajaratnam, is scheduled to go on trial May 21.

Among the more significant orders, Judge Rakoff said federal prosecutors must review the S.E.C.’s notes about 44 interviews of witnesses during its investigation of Mr. Gupta and disclose any exculpatory evidence to the defense. Federal prosecutors in the United States attorney’s office in Manhattan, who jointly conducted the 44 interviews with the S.E.C., argued that they had no obligation to review the S.E.C.’s notes because the two investigations were separate.

Judge Rakoff disagreed with the government’s position.

“That separate government agencies having overlapping jurisdiction will cooperate in the factual investigation of the same alleged misconduct makes perfect sense; but that they can then disclaim such cooperation to avoid their respective discovery obligations makes no sense at all,” Judge Rakoff wrote.

The S.E.C. and the Justice Department have long run parallel investigations, but the line between them can often become blurred. Judge Rakoff noted that there was a constitutional duty for prosecutors to disclose any exculpatory evidence — called Brady material — to the defense, regardless of whether the notes came from the S.E.C.

“To hold that these memoranda were not created as part of a joint factual investigation would make a mockery of the ‘joint investigation’ standard as applied to the defendant’s constitutional right to receive all information the government has available to it that tends to show his innocence,” Judge Rakoff wrote.

In other rulings, Judge Rakoff ordered that Lloyd C. Blankfein, the chief executive of Goldman Sachs, must sit for an additional two hours of depositions to be taken by Mr. Gupta’s lawyers. Mr. Blankfein was deposed for seven hours last month, and is expected to be a witness at Mr. Gupta’s trial.

The dispute over Mr. Blankfein’s testimony arose when, during the February deposition, Mr. Gupta’s lawyer asked Mr. Blankfein whom he had met with to prepare for the deposition. He responded that he had met with both federal prosecutors, S.E.C. lawyers and an F.B.I. agent. When Mr. Gupta’s lawyer asked Mr. Blankfein what the government asked at these meetings, the S.E.C. objected, citing work product protections.

Judge Rakoff ruled that Mr. Blankfein must answer these questions.

“By asking Blankfein what topics he recalls were discussed, what questions he was asked and what documents he was shown, defendants seek to discover how the preparation sessions affected Blankfein’s testimony, and do not demonstrate a mere naked attempt to obtain the S.E.C.’s and the U.S.A.O.’s legal opinions and strategy,” the judge wrote.

Judge Rakoff also issued several rulings that went against Mr. Gupta. He denied his lawyers’ motion to suppress the use of wiretaps at trial and to dismiss three of the counts in the government’s complaint that were claimed to be either vague or duplicative.

On the wiretap issue, Judge Rakoff said: “The simple truth is that, in both this and numerous other cases, insider trading cannot often be detected, let alone successfully prosecuted, without the aid of wiretaps.””

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


FBI sees more hedge fund trading probe informants

February 27, 2012

The Baltimore Sun on February 27, 2012 released the following:

“Grant McCool
Reuters

NEW YORK (Reuters) – The FBI says it has enough informants lined up to keep its investigations of suspected illegal insider trading at hedge funds going for at least five more years.

In a briefing on Monday with reporters at the New York office of the Federal Bureau of Investigation just blocks away from Wall Street, agents who manage squads of investigators likened the probes to penetrating a secret society.

The investigations are building on a mission dubbed “Perfect Hedge” that have led to the prosecutions of multimillionaire Galleon Group hedge fund founder Raj Rajaratnam and dozens of traders, executives and research consultants since late 2009.

“We have cooperators set up for years to come,” said David Chaves, a supervisory special agent for securities and commodities fraud investigations.

He told reporters that the informants include cooperating witnesses — people who have been identified as conducting illegal trading but who have agreed to assist authorities to catch others in the hopes of receiving a lighter sentence — and sources within hedge funds.

“I don’t want to say it’s infinite, but clearly in five years we think we will be working it,” Chaves said.

The Galleon prosecution and other recent insider-trading cases have used secretly-recorded telephone conversations to gather evidence, an investigatory tool traditionally used in organized crime or narcotics cases.

The use of wiretaps sent a chill through the hedge fund industry closed to outsiders and what the FBI calls “undercover resistant.”

Investigators have tracked mobile phone calls, instant messaging and social media to collect evidence.

The FBI says it is alert to new ways in which people may try to exchange information on publicly traded companies to gain an illegal edge.

“We will go to whatever lengths we have to keep up with changes in technology,” said Richard Jacobs, another FBI supervisory special agent for white-collar crime cases.

Both officials emphasized that law enforcement believes that the overwhelming majority of hedge funds and their traders are law-abiding and run their firms responsibly.

A similar briefing was given to reporters in Washington on Monday, where officials discussed the agency’s shift in focus of the past 10 years to financial fraud cases involving larger amounts of money than in the past.

For example, out of the 2,600 mortgage fraud investigations open nationally, 70 percent involve more than $1 million, compared with smaller bank frauds under $25,000 that were previously typical of the caseload.

In New York, the FBI said that to date, out of 64 arrests made in “Perfect Hedge,” 59 people have been convicted or have pleaded guilty. These prosecutions, in partnership with the office of the Manhattan U.S. Attorney and the U.S. Securities and Exchange Commission, have been an important deterrent, the agents said.

Another tool for deterrence is the publicity the cases have generated in the United States and abroad.

To that end, Michael Douglas, the Academy Award-winning star of the 1987 movie “Wall Street,” agreed to a request from the FBI to record a public service announcement.

“In the movie ‘Wall Street’ I played Gordon Gekko, who cheated to profit while innocent investors lost their savings,” Douglas, 67, says in the video recording released on Monday.

“The movie was fiction but the problem is real,” Douglas says in the video. “Our economy is increasingly dependent on the success and integrity of the financial markets. If a deal looks too good to be true, it probably is.””

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Gupta Faces New Charges in Insider Trading Case

February 1, 2012

The New York Times on January 31, 2012 released the following:

“BY PETER LATTMAN

Federal prosecutors expanded their case against Rajat K. Gupta on Tuesday, filing a new indictment that broadens what they claim was an insider trading conspiracy between the former director of Goldman Sachs and Raj Rajaratnam.

In a new charge, the government contends that Mr. Gupta called in to a Goldman board meeting in March 2007 from Mr. Rajaratnam’s offices at the Galleon Group hedge fund. Minutes after the call, he leaked secret information about the bank to Mr. Rajaratnam, the government says.

Gary P. Naftalis, a lawyer for Mr. Gupta, denied the new accusations, saying, “As we have stated from the onset, the government’s allegations are totally baseless.”

Last October, the government charged Mr. Gupta with leaking to Mr. Rajaratnam boardroom secrets about Goldman and Procter & Gamble, where he also served as a director. It was a stunning blow to Mr. Gupta, who as the former global head of the consulting firm McKinsey & Company was one of the world’s most respected businessmen.

His trial is set for April 9 before Judge Jed S. Rakoff in Federal District Court in Manhattan. Mr. Rajaratnam, who was convicted by a jury last May of leading a huge insider trading ring, is serving an 11-year prison term.

The new charges seem to counter one of Mr. Gupta’s main lines of defense. At pretrial hearings, Mr. Gupta’s lawyers have said that the relationship between Mr. Gupta and Mr. Rajaratnam, once close friends and business associates, had soured by 2008, which is when the government said that Mr. Gupta leaked corporate secrets to Mr. Rajaratnam. The lawyers attribute the falling out to a $10 million loss on an investment with Mr. Rajaratnam.

By stretching the conspiracy back to 2007, when the markets were still soaring and Galleon’s investments were performing well, the government appears to be countering the defense that Mr. Rajaratnam had fallen out of Mr. Gupta’s good graces.

In addition, the accusation that Mr. Gupta participated in a Goldman board call from Galleon’s offices suggests a coziness between the two men that Mr. Gupta’s lawyers have sought to debunk.

The additional charges against Mr. Gupta involve both Goldman and Procter & Gamble.

In one new count, prosecutors assert that Mr. Gupta, then a Goldman director, participated in a telephone meeting of the board’s audit committee in March 2007 from Galleon. Mr. Gupta heard a preview of Goldman’s earnings, which were strong and set for release the next morning, the government contends. About 25 minutes after the call, Galleon bought at least $70 million worth of Goldman shares, allowing the fund to profit when the bank’s shares rose the next morning.

In the other added charge, the government asserts that Mr. Gupta called Mr. Rajaratnam from Switzerland after participating in a Procter & Gamble board call and leaked information about the company’s coming earnings release.

Separately, Richard J. Holwell, the federal judge who presided over the trial of Mr. Rajaratnam, is retiring from the bench, according to two people with direct knowledge of the matter who requested anonymity because they were unauthorized to discuss it.

The timing of Judge Holwell’s retirement is unclear, but he is expected to return to private practice. He was a partner at the law firm White & Case before becoming a judge in 2003.

Judge Holwell did not respond to a request for comment.”

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


U.S. charges 7 in Alleged $62 million Dell insider-trading case

January 19, 2012

Reuters on January 18, 2012 released the following:

“By Basil Katz and Grant McCool

(Reuters) – U.S. prosecutors charged seven people, described as a circle of friends who formed a criminal club, with running a $62 million insider trading scheme – the latest salvo in a years-long probe of suspicious trading at hedge funds.

The FBI in New York arrested four people on Wednesday and authorities announced previously secret charges against three others, making it one of the largest sweeps in the government’s investigation.

The seven charged worked for five different hedge funds and investment firms and reaped nearly $62 million in illegal profits on trades in Dell Inc, the prosecutors said. That is similar in magnitude to insider trading gains made by Raj Rajaratnam, the convicted founder of the Galleon Group hedge fund.

The charging document told “by now, a sadly familiar story,” Manhattan U.S. Attorney Preet Bharara said at a news conference.

“It describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information,” Bharara said.

Dubbed “Operation Perfect Hedge” by the FBI, the probe has examined suspected sharing of confidential business information with hedge fund managers and analysts. Rajaratnam was arrested as part of the investigation and is now serving an 11-year prison term following his conviction by jury trial last year.

The defendants arrested on Wednesday include Anthony Chiasson, who co-founded the Level Global Investors hedge fund. He turned himself in to the FBI in New York, an agency spokesman said. A U.S. magistrate judge released him on $5 million bail during a brief appearance in Manhattan federal court. Chiasson was not asked to enter a plea, but his lawyer, Gregory Morvillo, said his client denied the charges.

Todd Newman, who headed technology trading for hedge fund Diamondback Capital Management from Boston, was also arrested. Diamondback said in a letter to investors on Wednesday that it had been “proactively assisting” criminal prosecutors and the U.S. Securities and Exchange Commission in the case against Newman and another former employee, Jesse Tortora.

Chiasson and Newman are accused of illegally trading ahead of computer maker Dell’s earnings announcements for the first and second quarters of 2008, netting them profits, respectively, of $57 million and $3.8 million. Another defendant, Jon Horvath, is accused of making an illegal $1 million trade in Dell. Horvath was released on $750,000 bail after a court appearance in New York.

In a parallel civil action, the SEC said investment analyst Sandeep “Sandy” Goyal of Princeton, New Jersey, obtained Dell quarterly earnings information and other performance data from an insider at Dell in advance of earnings announcements in 2008.

Goyal tipped then Diamondback analyst Tortora of Pembroke Pines, Florida, with the inside information, and Tortora in turn tipped several others, leading to insider trades on behalf of Diamondback and Level Global hedge funds.

The fourth man arrested was California-based hedge fund manager Danny Kuo, officials said.

A Dell representative said the company had cooperated with authorities.

The SEC charged Diamondback Capital and Level Global as well as the individuals.

SEC: SYSTEMIC DISHONESTY

At Wednesday’s news conference, SEC Enforcement Division chief Robert Khuzami said the cases, along with Galleon and prosecutions of some so-called expert network firms, “reflect systemic dishonesty and exposes a deeply-embedded level of corruption.”

Newman had been placed on leave of absence from Diamondback in 2010 and subsequently was let go by that firm. Reuters in November reported the government’s interest in Newman.

Chiasson, Newman, Horvath and Kuo were charged in U.S. District Court in Manhattan with one count each of conspiracy to commit securities fraud and securities fraud, according to court documents.

Horvath, who was also arrested on Wednesday, is currently employed at Sigma Capital management, a unit of Steven Cohen’s $14 billion hedge fund SAC Capital, said a person familiar with the case who is not authorized to speak publicly. A spokesman for SAC Capital could not immediately be reached for comment.

Criminal charges also were made public against Goyal, Tortora and Spyridon Adondakis, a former junior analyst at Level Global who all previously pleaded guilty and are cooperating.

Lawyers for the three men could not be reached to comment.

Lawyers for Newman and Kuo also could not be reached to comment.

FBI Assistant Director-in-Charge Janice Fedarcyk said in a statement that the agency has arrested more than 60 people in the crackdown.

“This initiative is far from over,” she said. “If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven’t been caught; it’s that you haven’t been caught yet.”

The criminal complaint – signed by FBI agent David Makol, who was assigned to the Galleon investigation – accused Newman and Chiasson of using information obtained by the three cooperators and their network of sources at companies to make illegal trades.

MORE HEADACHES FOR SAC

Horvath’s arrest creates more headaches for fund industry titan Cohen, who has not been accused of wrongdoing.

Federal investigators have been looking into allegations of wrongful trading at SAC for more than four years, Reuters has previously reported, and Horvath’s arrest comes after criminal cases of others who have been tied to SAC.

Donald Longueuil, a one-time SAC portfolio manager, last year was sentenced to 2-1/2 years in prison for insider trading while Noah Freeman, another former SAC portfolio manager, cooperated with the government and pleaded guilty.

The investigations of insider trading began at least eight years ago and were first made public in October 2009. Most of the dozens of defendants charged have pleaded guilty or been convicted.

Many of the cases have been based at least in part on the use of government wiretaps authorized by federal judges. Four hedge fund firms – Level Global, Diamondback, Loch Capital Management and Barai Capital Management – were raided by the FBI in late 2010. Level Global, Loch and Barai have since folded.

Rajaratnam remains the best-known investor implicated in the probe. Rajat Gupta, a former chief of the consulting firm McKinsey & Co and director of both Goldman Sachs Group Inc and Procter & Gamble Co, has been charged with providing illegal tips to Rajaratnam. He is fighting those charges.

The case is U.S.A v. Todd Newman et al, U.S. District Court for the Southern District of New York, No. 12-0124.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Raj Rajaratnam Checked into Devens Federal Medical Center (FMC Devens)

December 6, 2011
Devens Federal Medical Center
Photo By Elise Amendola
Devens Federal Medical Center

Business Insider on December 6, 2011 released the following:

“Raj Rajaratnam’s New Neighbors In Prison Are A Bunch Of High-Level Sex Offenders

By: Julia La Roche

Disgraced Galleon chief Raj Rajaratnam vacated his luxury Sutton Place apartment in Manhattan yesterday and checked into federal prison that houses high-level sex offenders.

Rajaratnam’s new abode at the Devens Federal Medical Center houses nearly 1,000 inmates. A significant portion of those inmates are sex offenders who require intensive, therapeutic treatment, while others suffer from severe substance abuse, according to Bureau of Prison’s website[].

The hedge fund manager, who was convicted of orchestrating the largest insider trading scheme in history, will at least begin his 11 year prison sentence at Devens.

That’s because Rajaratnam, a diabetic who requires dialysis, will need a facility to suit his health needs. Devens has its own dialysis treatment center on site.

According to Ed Bales, a managing director for Federal Prison Consultants, Rajaratnam probably won’t have to do any manual labor right away because of his health and he may never have to work during his sentence.

“He’s going to be reviewed because of his medical conditions,” Bale told Business Insider. “They won’t put him to work right away. He’s going to be sitting around loafing.”

For entertainment at Devens, there are recreational rooms, but no individual televisions in the cells, Bale said. There are gym facilities the inmates can use, but they are limited with equipment choices because they aren’t suppose to bulk up, he added.

“It’s a very mundane lifestyle — not too much excitement.””

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Judges Rule Galleon Chief Must Go to Prison

December 2, 2011
Raj Rajaratnam

The New York Times on December 1, 2011 released the following:

“BY PETER LATTMAN

A federal court has denied Raj Rajaratnam’s request to remain free on bail while he appeals his insider-trading conviction, a ruling that forces the fallen hedge fund manager to report to prison on Monday.

Mr. Rajaratnam, the former head of the hedge fund Galleon Group, is set to serve his 11-year sentence — the longest prison term to date for insider trading — in a federal prison in Ayer, Mass.

In a last-ditch try to keep their client out of jail pending his appeal, his lawyers appeared at the United States Court of Appeals for the Second Circuit in Lower Manhattan on Wednesday. They argued that his case raised substantial questions of law that mandated his release until the appeal was resolved.

In a short order issued Thursday afternoon, the three-judge panel, without explanation, denied Mr. Rajaratnam’s request. During the hearing, the judges had expressed concern that Mr. Rajaratnam was a flight risk and could have an incentive to flee to his native Sri Lanka.

“Wouldn’t he rather be living as a centimillionaire in his own country rather than as a convict in a jail?” Judge Dennis Jacobs asked Patricia A. Millett, a lawyer for Mr. Rajaratnam, at the hearing on Wednesday.

Beginning Monday, Mr. Rajaratnam will be living at the Federal Medical Center Devens in Massachusetts. Mr. Rajaratnam, 54, was assigned there because of his health problems. He has diabetes that could lead to eventual kidney failure, according to medical records submitted to the court.

The Devens prison is located about 200 miles from his luxury apartment on Sutton Place in Manhattan, where he lives with his wife and three children.

Mr. Rajaratnam’s surrender to the Bureau of Prisons is a milestone in the government’s most prominent insider trading prosecution since the 1980s. Federal authorities arrested Mr. Rajaratnam in October 2009, charging him with orchestrating a multiyear insider trading conspiracy involving senior corporate executives, management consultants and other hedge fund managers.

In May, a jury found him guilty of securities fraud and conspiracy. Between the criminal case and a parallel civil proceeding brought by the Securities and Exchange Commission, Mr. Rajaratnam has been ordered to pay about $157 million in fines, the largest penalty assessed so far in an insider trading case.

The pursuit of insider trading by federal prosecutors appears to be continuing unabated. Before year end, the government is expected to bring a new set of insider trading charges against traders at Diamondback Capital Management and Level Global Investors, according to a person with direct knowledge of the case who spoke on the condition of anonymity because he was not authorized to discuss it publicly.

The new cases are based in part on wiretapped conversations between the traders and illegal tipsters, this person said. Dozens of secretly recorded conversations between Mr. Rajaratnam and his accomplices also formed the core of the evidence against him at trial.

They will also form the core of Mr. Rajaratnam’s appeal, which could take as long as a year to resolve. His lawyers will argue that the government improperly obtained judicial authorization to wiretap his telephone, violating the law and Mr. Rajaratnam’s constitutional rights.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Former McKinsey CEO Gupta pleads not guilty to insider-trading charges

October 27, 2011
Rajat K. Gupta
Image from The Washington Post

The Washington Post on October 26, 2011 released the following:

“By David S. Hilzenrath, Published: October 26

From Kolkata, India, Rajat K. Gupta rose to the heights of international business, leading the global consulting firm McKinsey & Co. and serving on the boards of companies such as Goldman Sachs, Procter & Gamble and the parent of American Airlines.

But on Wednesday, Gupta turned himself in at the New York office of the FBI, where he was fingerprinted, photographed and subjected to a DNA swab before going to court to face criminal charges that he participated in an insider trading scheme.

Gupta, 62, became the most prominent figure charged in a federal crackdown on insider trading that recently led to an 11-year prison sentence for his alleged co-conspirator, hedge fund billionaire Raj Rajaratnam.

The indictment alleges that Gupta divulged boardroom secrets to Rajaratnam, who then traded on them.

Gupta pleaded not guilty and was released. He was given until Nov. 11 to surrender his passport and post a $10 million bond secured by his Connecticut home.

Gupta’s attorney, Gary P. Naftalis, issued a statement saying that the charges “are totally baseless.”

“The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity,” Naftalis said.

Gupta had been under a cloud for months. The government declared him an unindicted co-conspirator during its prosecution of Rajaratnam, and shortly before Rajaratnam’s trial began, the Securities and Exchange Commission charged him administratively, laying out the allegations against him.

After losing a procedural battle, the SEC withdrew the administrative case in August, but on Wednesday it filed a civil suit against Gupta that paralleled the criminal charges.

According to the government, the conspiracy played out in 2008 and 2009. Sometimes, Gupta passed secrets to Rajaratnam, founder of Galleon Management, so quickly that his tips “could be termed instant messaging,” Janice K. Fedarcyk, assistant director in charge of the FBI’s New York office, said in a statement.

For example, on Sept. 23, 2008, as Wall Street teetered on the brink of collapse, Gupta participated by phone in a meeting in which the Goldman Sachs board approved a $5 billion infusion from Warren Buffett’s Berkshire Hathaway. At about 3:54 p.m., approximately 16 seconds after Gupta disconnected his phone from the Goldman call, his assistant phoned Rajaratnam and patched in Gupta, the indictment said. Gupta then told Rajaratnam about the Berkshire investment, the government said.

With two minutes to spare before the market closed, Rajaratnam then caused some of Galleon’s funds to buy Goldman shares, the government said. Goldman announced the deal with Berkshire after the market closed, and the next day Galleon sold the Goldman shares at an illegal profit of about $840,000, the government charged.

Similarly, in October 2008, Gupta and other Goldman directors were told that the Wall Street firm had lost almost $2 per share that quarter in what would be the first quarterly loss in Goldman’s history, the government said. Approximately 23 seconds after disconnecting from that call, Gupta called Rajaratnam, the indictment said. By selling Goldman shares, Galleon funds avoided millions of dollars of losses, the government said.

Entrusted with confidential information, Gupta “became the illegal eyes and ears in the boardroom for his friend and business associate,” Preet Bharara, U.S. attorney for Manhattan, said in a statement.

Naftalis, the defense lawyer, said that there were legitimate reasons for Gupta’s communications with Rajaratnam and that the accusations “are based entirely on circumstantial evidence.”

Rajaratnam was convicted largely on the basis of government wiretaps, and verbatim excerpts of secretly recorded calls have figured prominently in other recent insider trading cases. The Gupta indictment does not explicitly cite recordings of Gupta passing inside information to Rajaratnam.

But in a July 2008 call captured by the government, Gupta talked to Rajaratnam about a Goldman board discussion and a rumor that Goldman might try to buy a commercial bank, according to a transcript.

“This was a big discussion at the board meeting,” Gupta allegedly said, adding that it was a “divided discussion in the board.”

Gupta’s fall from the top of the business world followed a dramatic rise.

In a 1994 interview with Business Today, the native of India said his father was a journalist and freedom fighter who had been jailed many times, and his mother taught at a Montessori school. He went from the Indian Institute of Technology in Delhi to Harvard Business School, where his classmates were surprised to learn he earned excellent grades.

“I never said much, you know,” he told the interviewer.

At age 45, he was running McKinsey, a post he held from 1994 to 2003.

He served on a board of advisers to the dean of Harvard Business School and on a similar panel at MIT’s Sloan School of Management. He chaired an advisory panel for the Bill and Melinda Gates Foundation, and he became a special adviser to the secretary general of the United Nations.

Gupta’s trial is scheduled to begin in April.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

————————————————————–

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.