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Former Goldman Sachs Board Member Rajat Gupta Charged By SEC With Insider Trading

Tyler Durden's picture




 

Just what Goldman did not need: a former board member of Goldman Sachs, Rajat Gupta has been charged by the SEC with insider trading, related to the Galleon insider trading scheme. It seems, Gupta was also tipped off about Berkshire's $5 billion investment in Goldman.

From the release:

Washington, D.C., March 1, 2011 – The Securities and Exchange
Commission today announced insider trading charges against a Westport,
Conn.-based business consultant who has served on the boards of
directors at Goldman Sachs and Procter & Gamble 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.

The SEC’s Division of Enforcement alleges that Rajat K. Gupta, a
friend and business associate of Rajaratnam, provided him with
confidential information learned during board calls and in other aspects
of his duties on the Goldman and P&G boards. Rajaratnam 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 firms. The insider trading by
Rajaratnam and others generated more than $18 million in illicit profits
and loss avoidance. Gupta was at the time a direct or indirect investor
in at least some of these Galleon hedge funds, and had other
potentially lucrative business interests with Rajaratnam.

The SEC has previously charged Rajaratnam and others in the widespread insider trading scheme involving the Galleon hedge funds.

“Gupta was honored with the highest trust of leading public
companies, and he betrayed that trust by disclosing their most sensitive
and valuable secrets,” said Robert Khuzami, Director of the SEC’s
Division of Enforcement. “Directors who violate the sanctity of board
room confidences for private gain will be held to account for their
illegal actions.”

In the order that institutes administrative and cease-and-desist
proceedings against Gupta, the SEC’s Division of Enforcement alleges
that, while a member of Goldman’s Board of Directors, Gupta tipped
Rajaratnam about Berkshire Hathaway’s $5 billion investment in Goldman
and Goldman’s upcoming public equity offering before that information
was publicly announced on Sept. 23, 2008. Gupta called Rajaratnam
immediately after a special telephonic meeting at which Goldman’s Board
considered and approved Berkshire’s investment in Goldman Sachs and the
public equity offering. Within a minute after the Gupta-Rajaratnam call
and just minutes before the close of the markets, Rajaratnam arranged
for Galleon funds to purchase more than 175,000 Goldman shares.
Rajaratnam later informed another participant in the scheme that he
received the tip on which he traded only minutes before the market
close. Rajaratnam caused the Galleon funds to liquidate their Goldman
holdings the following day after the information became public, making
illicit profits of more than $900,000.

The SEC’s Division of Enforcement alleges that Gupta also illegally
disclosed to Rajaratnam inside information about Goldman Sachs’s
positive financial results for the second quarter of 2008. Goldman Sachs
CEO Lloyd Blankfein called Gupta and various other Goldman outside
directors on June 10, when the company’s financial performance was
significantly better than analysts’ consensus estimates. Blankfein knew
the earnings numbers and discussed them with Gupta during the call.
Between that night and the following morning, there was a flurry of
calls between Gupta and Rajaratnam. Shortly after the last of these
calls and within minutes after the markets opened on June 11, Rajaratnam
caused certain Galleon funds to purchase more than 5,500
out-of-the-money Goldman call options and more than 350,000 Goldman
shares. Rajaratnam liquidated these positions on or around June 17, when
Goldman made its quarterly earnings announcement. These transactions
generated illicit profits of more than $13.6 million for the Galleon
funds.

The Division of Enforcement further alleges that Gupta tipped
Rajaratnam with confidential information that he learned during a board
posting call about Goldman’s impending negative financial results for
the fourth quarter of 2008. The call ended after the close of the market
on October 23, with senior executives informing the board of the
company’s financial situation. Mere seconds after the board call, Gupta
called Rajaratnam, who then arranged for certain Galleon funds to begin
selling their Goldman holdings shortly after the financial markets
opened the following day until the funds finished selling off their
holdings, which had consisted of more than 120,000 shares. In discussing
trading and market information that day with another participant in the
insider trading scheme, Rajaratnam explained that while Wall Street
expected Goldman Sachs to earn $2.50 per share, he had heard the prior
day from a Goldman Sachs board member that the company was actually
going to lose $2 per share. As a result of Rajaratnam’s trades based on
the inside information that Gupta provided, the Galleon funds avoided
losses of more than $3 million.

As it pertains to insider trades by the Galleon funds in the
securities of Procter & Gamble, the Division of Enforcement alleges
that Gupta illegally disclosed to Rajaratnam inside information about
the company financial results for the quarter ending December 2008.
Gupta participated in a telephonic meeting of P&G’s Audit Committee
at 9 a.m. on Jan. 29, 2009, to discuss the planned release of P&G’s
quarterly earnings the next day. A draft of the earnings release, which
had been mailed to Gupta and the other committee members two days before
the meeting, indicated that P&G’s expected organic sales would be
less than previously publicly predicted. Gupta called Rajaratnam in the
early afternoon on January 29, and Rajaratnam shortly afterward advised
another participant in the insider trading conspiracy that he had
learned from a contact on P&G’s board that the company’s organic
sales growth would be lower than expected. Galleon funds then sold short
approximately 180,000 P&G shares, making illicit profits of more
than $570,000.

The Division of Enforcement alleges that by engaging in the
misconduct described in the SEC’s order, Gupta willfully violated
Section 17(a) of the Securities Act and Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder. The administrative proceedings will
determine what relief, if any, is in the public interest against Gupta,
including disgorgement of ill-gotten gains, prejudgment interest,
financial penalties, an officer or director bar, and other remedial
relief.

Sanjay Wadhwa, Jason Friedman and John Henderson – members of the
SEC’s Market Abuse Unit in New York – together with Diego Brucculeri and
James D’Avino of the New York Regional Office conducted the agency’s
investigation, which is continuing. The SEC’s litigation effort will be
led by Kevin McGrath and Valerie Szczepanik of the New York Regional
Office.

Full filing:

 

 

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Tue, 03/01/2011 - 12:36 | 1007295 JimRogers
JimRogers's picture

BTFD

Tue, 03/01/2011 - 12:36 | 1007297 Cdad
Cdad's picture

Proving once again that the enemy of our sad State is...

THE CRIMINAL SYNDICATE KNOWN AS WALL STREET.

Tue, 03/01/2011 - 12:53 | 1007388 Careless Whisper
Careless Whisper's picture

no way. this is a setup. goldman has the highest degree of integrity.

Tue, 03/01/2011 - 13:11 | 1007514 redpill
redpill's picture

They do God's work, you know.

Tue, 03/01/2011 - 13:35 | 1007637 Sub Dude
Sub Dude's picture

+ ∞

 

Tue, 03/01/2011 - 12:37 | 1007302 Misean
Misean's picture

So, a fine of like 0.05% of his ill gotten gains, and a purchasing few choice porn site platinum memberships to be raffled off to the staff...

Tue, 03/01/2011 - 12:41 | 1007322 Cdad
Cdad's picture

While your suggestion here has plenty of precedent, you fail to notice confirmation of the change in trend.  Confirmation of the complete bucket of crap we are in is coming from the precious metals market...soon to be joined by the VIX.

Things often work...until they suddenly don't.  I do believe today's price action is suggesting that the trend line on the chart of LIES is breaking, and the movement on the chart of TRUTH looks like it is forming a gap reversal.

Tue, 03/01/2011 - 12:48 | 1007363 Misean
Misean's picture

Oh, the wheels will come off the cart. But given the obtuseness of government bureaurats, I'm not holding my breath that they will be the entity to deliver karma.

Tue, 03/01/2011 - 12:58 | 1007418 velobabe
velobabe's picture

ohhhhh, two times in one night, extraordinary†

Tue, 03/01/2011 - 12:39 | 1007309 LongSoupLine
LongSoupLine's picture

uh oh..."God" will not be happy.

Tue, 03/01/2011 - 12:40 | 1007319 gwar5
gwar5's picture

Shocked....

When somebody sqeals on Blankfein, Geithner, or Bernanke I'll get really excited.

Didn't Geithner have some dodgy dealings as FRBNY?

Tue, 03/01/2011 - 13:09 | 1007500 disabledvet
disabledvet's picture

actually he testified to that effect before Congress.  He was confirmed nonetheless.  In other news "we all have hope now."

Tue, 03/01/2011 - 19:33 | 1009380 BigSkyBear
BigSkyBear's picture

Define "Dodgy"

 

8-/

Tue, 03/01/2011 - 12:41 | 1007325 TruthInSunshine
TruthInSunshine's picture

Lloyd Blankfein is taking him to Scores for drinks and some dances in the VIP room, to bid him farewell on his journey to 'college,' while warning him to be very quiet.

Tue, 03/01/2011 - 12:45 | 1007343 G-R-U-N-T
G-R-U-N-T's picture

"Financial Terrorism Suspected in 2008 Economic Crash".  Hm....

http://www.washingtontimes.com/news/2011/feb/28/financial-terrorism-susp...

 

Tue, 03/01/2011 - 12:47 | 1007348 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

They are such a nice lot of people, who'd a thunk they would be among the first to be hauled off into the recesses of the US penal system. Things that make you go hmmmmmm.

Fucking Indians. They are absolute parasites!

Tue, 03/01/2011 - 18:09 | 1009100 Zero Govt
Zero Govt's picture

SO WHAT???

Rothchild had fast Carrier Pigeons for advanced knowledge to trade on.

Order computers tap into micro-second advanced knowledge of punters orders to trade on.  

Gupta rings his buddy Rajaratnam that Buffet is buying into Goldmans to trade on.

What's the fuking difference???

Advanced knowledge is not illegal in any other business nor should it be. How about the SE scumbag C stop wasting everybodys time on this petty nonsense and go after the REAL CROOKS like Wall Street mortgage fraud and Credit Ratings Agencies???

Tue, 03/01/2011 - 12:46 | 1007350 HonestJohn
HonestJohn's picture

Oh, they must have read Taibbi's article and found a sacrificial lamb.

Tue, 03/01/2011 - 13:32 | 1007624 MiddleMeThis
MiddleMeThis's picture

My thoughts exactly.  The sacraficial lambs for the sheep that think maybe something "bad" is going on in our financial system, but don't know the full extent.  The general populace will only see this as, "look how hard the SEC works for us!"  They will never know the extent of the corruption on Wall St.  And the rest of the banksta/Wall St. criminals will remain free and living high on the hog.

Tue, 03/01/2011 - 12:48 | 1007355 SpeakerFTD
SpeakerFTD's picture

Dear President Obama:

You need this.  And many more.   Even if they can't explain the details, Americans implicitly understand that they have been fleeced.  They want perp walks.  Not of a low-level scapegoats, but of directors, VPs, CEOs - big fish.  

They will still argue about all the issues, but if you can actually demonstrate that you are willing to stand up for them by giving them a perp walk every week from now to 2012, your odds of re-election go up considerably.

Tue, 03/01/2011 - 12:47 | 1007360 williambanzai7
williambanzai7's picture

Pass the curry powder please...

Tue, 03/01/2011 - 12:57 | 1007410 Id fight Gandhi
Id fight Gandhi's picture

Do they serve curry in prison?

Tue, 03/01/2011 - 12:59 | 1007429 velobabe
velobabe's picture

just put a little on one's finger and up the hole, matey†

Tue, 03/01/2011 - 12:56 | 1007411 velobabe
velobabe's picture

what the heck, does curry powder have to do with anything?

Tue, 03/01/2011 - 12:49 | 1007361 PulauHantu29
PulauHantu29's picture

"Who could have seen this coming?"

 

Does this mean he gets GS shareholders to pay his Mini-Fine so he can get back to work?

Tue, 03/01/2011 - 12:49 | 1007364 clones2
clones2's picture

Cdad - agreed...

Looks like another red day with higher than normal volume.  Lots of charts starting to roll over...

Seems like a little weaker every day...  Im thinking this is a nasty little setup shaping up.

 

 

 

Tue, 03/01/2011 - 12:59 | 1007417 Cdad
Cdad's picture

Perfect confirmation so far.  Symmetry.  As Goldman goes into damage control mode, the actual gravity of the problems at JP Morgue are exponentially higher.  And despite how some GETCO like firm is currently trying to hold the 20 sma on those shares signaling hockey helmet wearing brokers at the Criminal Syndicate known as Wall Street to BTFD, it seems almost certain that the JP Morgue will join PMs and the VIX to seal the deal...which would almost certainly take down the DOW.

 

Tue, 03/01/2011 - 13:10 | 1007510 disabledvet
disabledvet's picture

no different from the previous...427 days of...gains...without...even...a...

Tue, 03/01/2011 - 12:49 | 1007367 Robert-Paulson
Robert-Paulson's picture

Blue Horseshoe loves Anacott Steel.

Tue, 03/01/2011 - 13:12 | 1007517 disabledvet
disabledvet's picture

whose she?  sounds very...demure.

Tue, 03/01/2011 - 12:51 | 1007373 digalert
digalert's picture

CNBS pep squad leader Cabrerra:

"could Golden Slacks be a victim here?"

hah, GS a victim?

Tue, 03/01/2011 - 12:53 | 1007383 SilverRhino
SilverRhino's picture

Get back to me when they've started charging the white guys in Goldman Sucks.

Tue, 03/01/2011 - 13:54 | 1007723 What does it al...
What does it all mean's picture

+1

 

The traders are all following directions from above...

Tue, 03/01/2011 - 14:45 | 1008013 Oh regional Indian
Oh regional Indian's picture

Exactly Silver.

And wild to see so much anti-indian vitriol. I was lucky, in my 12 years in the US, to have never once been racially jibed (except at the airport by a TSA goon).

But this outsourcing business has really created a deep India hatred in the US.

Interesting, because India was set up for this role with it's english centric education, a boom in software education in the early nineties and then the very convenient, absolutely contrived and seemingly long-forgotten Y2K scare, where everyone was told that their undies would catch fire if everything was not checked. And this led to banks off-shoring all the work they said the US could not handle. And they chose their hand-picked Indian lackeys to take the business here. Ruined 3 generations of Indians so far (had to change name, like Jamal had to be Jim, changed language (accent training) and stay up nights and sleep days.

And  overpaid to boot.

Beautiful set-up eh?

After the Y2K whimper, everyone was just glad to have survived and forgot that the outsourcing tap, now open for cost-cutting was wide open. And Indian's were turned, almost overnight, into an aspirationalist, totally greedy, thoughtless, business obsessed, white obsessed people.

All morality has disappeared in these lost generations. They had their identity stripped away from them... name, speech and circadian rhythms?

You guys think this has been good for India? Please, take your call-centre jobs back. But your banking masters will not let you. Slave labour is addictive to them.

So, similarly, china was turned into the polluted, lawless factory of the world and India was turned into the always unsure pretender of a back-office boy.

All foreigners, who complain of Indian's and chinese in their countries not "mixing-in" with the local, come here and live in gated communities, drive the most expensive cars, completely tinted over, have their own over-priced shops..... they do not mix at all.

It is a really interesting thing to see all this hate here. No one can think beyond their nose of their belly. Since when have them money-men ever done anything that has been good for ANYONE? Never.

India is a lost nation. In 15 short years from the introduction of Colour TV and "The Bold And the Beautiful", India has lost it's soul.

Seriously, the American influence, in every sphere in India, has been pernicious, down to the agenda pushing NGO's, pushing male sterlization and massive vaccination drives.

Bill Gates, Mr. Polio Eradicator (Hah, we know you mr. Gates and Buffer) is here and Sarah Palin is coming as is Niall Furgueson. Full court press. Oscars, Grammys….nothing is hard for India now. Hollywood loves Indian beauties. Yes. Because now they look like American ones.

Outsourcing has ripped the fabric of Indian society at it’s solar-plexus.

And when the dollar collapses, as it will, so will this entire bloated, middle class….

There were three las vegas themed parties, with actual vegas strippers in Bangalore this new year. People look terrible in ill-suited western clothes. Now increasingly naked. That has been a shocker. Women walk around half-naked, but in Indian clothes.  Oh and our daily paper has two or three full page spreads about the rainbow revolution and greatness and okayness of gayness.

Hand-picked celebrities are being thrust everywhere. Chose an actor to speak with Billary. It has been elevated to a deified state. We know who is financing the current Bollywood. And Tollywood and kollywood. The paw-prints are everywhere.

So please, stop whining and take your jobs back at 2$ an hour and serve each other.

Any gain to India through this bargain has been a carefully crafted illusion.

Bernays would be proud.

 

It's almost as if the grounds are being prepared so most Mid-america americans will be happy if something bad happens to India/Indians.

ORI

http://aadivaahan.wordpress.com/2010/07/13/whither-india/

 

Tue, 03/01/2011 - 12:57 | 1007412 Rainman
Rainman's picture

Looks like these Galleon Indians were frontrunning a whole bunch of companies...IBM, GS, PG. They are just the tip of a very, very large iceberg. The bigger inside playerz are no doubt giddy with joy that the smaller playerz got popped by the SEC. Another set of idiots used the phone. First place the snoops are going to snoop is phone records.

One camel may perish, but the caravan moves on.

Tue, 03/01/2011 - 13:15 | 1007538 disabledvet
disabledvet's picture

This particular "caravan" seems slightly different than say...the "Van Morrison" variant.  I'm "just not feelin' it" if you know what i mean.  Like "who took my Woodstock and turned it into P. Diddy."

Tue, 03/01/2011 - 13:00 | 1007433 I am a Man I am...
I am a Man I am Forty's picture

from wikipedia

"Rajat Gupta (Hindi??? ????? ??????; born December 2, 1948) is the current special advisor on management reforms to the Secretary-General of the United Nations"


Tue, 03/01/2011 - 14:14 | 1007838 Oh regional Indian
Oh regional Indian's picture

If I'm not wrong, isn't this the former Charman or Head Whatamadooda at mcKinsey and co?

Too much of a co-incidence. and if he is, this is going to dominoe out. Big time.

Those McKinsey, CFR folks, good for nothings!

ORI

http://aadivaahan.wordpress.com/2010/06/13/machine-strong-human-weak/

Tue, 03/01/2011 - 13:02 | 1007456 the rookie cynic
the rookie cynic's picture

Charges, smarges. He'll get a plea and a fine. I'll get interested if and when I see him in handcuffs.

Tue, 03/01/2011 - 19:38 | 1009392 BigSkyBear
BigSkyBear's picture

I'm with you, or better yet -

 

"Tarred & Feathered" 

 

(Think HBO Mini-Series: John Adams)

Tue, 03/01/2011 - 13:05 | 1007461 topshelfstuff
topshelfstuff's picture

does anyone check the Personal, or Front [off-shore] Traing accounts of these guys, or do we just hear about what the "Fund" did?

Tue, 03/01/2011 - 13:06 | 1007477 Trader Joe
Trader Joe's picture

For anyone that has ever pursued a degree in engineering

Today's reported "cheating" by Galleon's proprietor and his various blow-buddies will come as NO SURPRISE 

These filthy animals are cheaters by their vary nature

Tue, 03/01/2011 - 13:27 | 1007599 Judge Judy Scheinlok
Judge Judy Scheinlok's picture

You are too kind TJ. Their very DNA character traits are bound with the filth and swallor that defines their homeland.

There was a very clever engineer that use to post on various topics here on ZH.

He is in the process of creating a machine that generates shock waves that use high orders of gravitational force in order to liquefy flesh and bones. The liquid paste is then put through a centrifuge to separate out carbon and the carbon is then bound to hydrogen and other liquid organic compounds creating..... Cheap salable energy products for locomotion.

Carbon 83 to 87%
Hydrogen 10 to 14%
Nitrogen 0.1 to 2%
Oxygen 0.1 to 1.5%
Sulfur 0.5 to .6%

It is a DARPA project.

Tue, 03/01/2011 - 13:10 | 1007509 bugs_
bugs_'s picture

Deep Shah.

Tue, 03/01/2011 - 13:12 | 1007524 ThisIsBob
ThisIsBob's picture

So Blankfein calls his outside directors and tells them that Goldman is going to beat, and he thinks that information is going nowhere?

Right.

Tue, 03/01/2011 - 13:14 | 1007528 SRV - ES339
SRV - ES339's picture

... wake me up when someone responsible for the "culture" of fraud and corruption on Wall Street is locked up... this guy was a Director who sat on audit, compensation, and corporate culture committees... he's also Chairman of the International Chamber of Commerce (buying legislators around the world to further "gods work")...

CNBC panel discussion moved to possible negative impact this lone wolf might have on Goldman's squeaky clean image... took about 60 secs... also, the usual "please remember these are not criminal charges" B/S didn't take long

CNBC just cut away from Bernank... he was being asked to defend the practice of buying back treasuries from primary dealers just weeks after the original purchase... oops, can't have that on air

Tue, 03/01/2011 - 13:21 | 1007572 Cdad
Cdad's picture

They used to say about the Clinton administration that there was an established, "Culture of corruption."  Looking back, that culture pales in comparison to the criminal syndicate known as Wall Street.

And whatever the closing mark of the S&P turns out to be today, what is happening is the revelation that there is nothing here to have confidence in...for the players involved. 

Two years of HFT magic trying to once again establish market credibility for the sheeple...down the drain.  And for an illegal trade netting 13 mil.  Nice.

 

Tue, 03/01/2011 - 13:30 | 1007610 Joe Davola
Joe Davola's picture

Was that wrong? Should I have not done that? I tell you I gotta plead ingnorance on this thing because if anyone had said anything to me at all when I first started here that that sort of thing was frowned upon, you know, cause I've worked in a lot of offices and I tell you people do that all the time.

Tue, 03/01/2011 - 19:39 | 1009404 BigSkyBear
BigSkyBear's picture

Haaaaaaaa! - classic.

Tue, 03/01/2011 - 13:44 | 1007673 disabledvet
disabledvet's picture

The "Madoff defense" perhaps?  "How come I got caught and all those others got away with it"?  Tough sell in this climate--although the g-man picks his targets well so I wouldn't "sell this one short" shall we say.  I find it interesting that insider trading is being prosecuted at all.  At a certain level "you'd have to arrest 8 million of them."  In further news "Iran prosecutes media crimes."

Tue, 03/01/2011 - 14:06 | 1007703 What does it al...
What does it all mean's picture

If you are not cheating, you are not trying hard enough!

Just don't get caught.

Wait until SAC / JPM / GS's amazing traders are caught.  The entire business is shady...  and getting shadier...

I won't be surprised if somebody got a tip from the SEC that this will *not* be announced at the end of Feb, and will be announced now...  So, sell pre-market today.  Imagine the irony...

Tue, 03/01/2011 - 14:09 | 1007806 El Hosel
El Hosel's picture

.....  Just another name to be added to the  "there will be no Conviction list" at Goldman.

   FK EM ALL!

Tue, 03/01/2011 - 14:11 | 1007824 simpleminds
simpleminds's picture

He must have fogotten to pay his yearly dues (bribes).

Tue, 03/01/2011 - 14:15 | 1007844 Seasmoke
Seasmoke's picture

Indians and Jews.....nothing dirtier than that

Wed, 03/02/2011 - 09:19 | 1010752 Trader Joe
Trader Joe's picture

Wurd!

Tue, 03/01/2011 - 14:49 | 1008043 jointhewave
jointhewave's picture

Watch the video 'BERNIE MADOFF PONZI SCHEME & TRILLION DOLLAR MORTGAGE TIME BOMB' at (http://www.youtube.com/watch?v=LOPu8V6qdeA). 

Anonymous -

I could not believe the testimony from Ben Bernanke this morning! He literally admits we are headed for a systemic crash! This is unbelievable!

Tue, 03/01/2011 - 15:57 | 1008337 zebra
zebra's picture

isn't it easier to identify the ones who are innocent (if any)?

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