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Former Goldman Sachs Director Charged With Securities Fraud

Wednesday, 26 October 2011 08:07 By Azam Ahmed, The New York Times News Service | Report

Rajat K. Gupta, a former Goldman Sachs director who surrendered to the Federal Bureau of Investigation on Wednesday morning, was charged with insider trading, the latest development in the government’s multiyear crackdown on illegal activity on Wall Street.

Mr. Gupta, 62, is accused of leaking corporate secrets on Goldman Sachs to the hedge fund manager Raj Rajaratnam, the Galleon Group co-founder who was sentenced to 11 years in prison this month for making tens of millions of dollars through insider trading. A federal grand jury in Manhattan charged Mr. Gupta with one count of conspiracy to commit securities fraud and five counts of securities fraud, all related to tips on Goldman Sachs in 2008.

“Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders,” Preet Bharara, the United States attorney in Manhattan, said in a statement. “As alleged, he broke that trust and instead became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam, who reaped enormous profits from Mr. Gupta’s breach of duty.”

In charging Mr. Gupta, the government is tying up one of the biggest loose ends resulting from the investigation into the Galleon Group, which began nearly five years ago at the Securities and Exchange Commission.

Gary P. Naftalis, a lawyer for Mr. Gupta, said in a statement on Tuesday: “The facts demonstrate that Mr. Gupta is an innocent man and that he acted with honesty and integrity.”

Authorities have broadly pursued insider trading on Wall Street, exacting guilty pleas from a chemist at the Food and Drug Administration, among others, as recently as this month. In the past two years, authorities have charged 56 people with insider trading, including Mr. Gupta; of those, 51 have pleaded guilty or have been convicted of swapping illegal tips about company earnings and other major corporate events. While the majority of those charged have been traders and analysts on Wall Street, Mr. Gupta, 62, is the first executive to be implicated from the upper echelons of corporate America.

The charges are a stunning reversal of fortunes for Mr. Gupta. A native of India, he graduated from Harvard Business School and had a global profile as an adviser to some of the nation’s most iconic companies. He served as a director at Goldman, Procter & Gamble and the parent company of American Airlines. In addition to his professional pedigree, Mr. Gupta was a noted philanthropist, serving in coveted posts with the Bill and Melinda Gates Foundation.

Mr. Gupta’s case has been a tricky one for the government. Though his name came up repeatedly at Mr. Rajaratnam’s trial, both in testimony and in secretly recorded phone conversations, the Justice Department never filed charges against him. The S.E.C. filed an administrative action against Mr. Gupta, and he countersued. The agency later dropped the civil proceedings, but reserved the right to refile the case.

On Wednesday, the S.E.C. filed a complaint against Mr. Gupta and Mr. Rajaratnam, alleging an “extensive insider trading scheme.”

“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets to the disadvantage of investors, shareholders, and fellow directors,” Robert S. Khuzami, director of the S.E.C.’s Division of Enforcement, said in a statement. “Directors who exploit board room confidences for private gain can be certain they will ultimately be held responsible for their illegal actions.”

The strength of the government’s case is unclear, but details that emerged during Mr. Rajaratnam’s trial were explosive. In their original action, the S.E.C. accused Mr. Gupta of passing confidential information about Goldman and Procter to Mr. Rajaratnam, who then traded on the news. The agency also claimed that Mr. Gupta gave Mr. Rajaratnam advance word of Warren E. Buffett’s $5 billion investment in Goldman during the darkest days of the financial crisis, in addition to other confidential information.

But some of the most powerful evidence for prosecutors may not be presented at trial. Information about Goldman Sachs that the government says came from Mr. Gupta was recorded in phone calls between Mr. Rajaratnam and his employees. A judge could say the evidence is hearsay, which means it is too speculative to use in court against Mr. Gupta.

In one call that the jury heard in the courtroom, Mr. Rajaratnam told someone: “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.” In a different call, Mr. Rajaratnam said, “I got a call saying something good is going to happen to Goldman.”

Mr. Gupta’s path to the heights of the global business elite began in India shortly after the country’s independence from Britain. He attended the prestigious Indian Institute of Technology before enrolling at Harvard Business School. After graduating near the top of his class, he joined McKinsey and quickly rose up the ranks of the white-shoe consultancy, which advises a large swathe of the Fortune 500 companies on corporate strategy, executive training and other business matters.

In 1994, at the age 45, Mr. Gupta was tapped to lead McKinsey. During his tenure, the firm expanded its global reach, aggressively moving into emerging markets like India and China.

While he oversaw an era of growth at the consulting firm, his reign was not without controversy. McKinsey encouraged Enron’s transformation from a sleepy energy pipeline company into a high-risk trading operation that ultimately collapsed amid an accounting scandal. Jeffrey Skilling, Enron’s former chief executive, was a McKinsey alumnus.


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Former Goldman Sachs Director Charged With Securities Fraud

Wednesday, 26 October 2011 08:07 By Azam Ahmed, The New York Times News Service | Report

Rajat K. Gupta, a former Goldman Sachs director who surrendered to the Federal Bureau of Investigation on Wednesday morning, was charged with insider trading, the latest development in the government’s multiyear crackdown on illegal activity on Wall Street.

Mr. Gupta, 62, is accused of leaking corporate secrets on Goldman Sachs to the hedge fund manager Raj Rajaratnam, the Galleon Group co-founder who was sentenced to 11 years in prison this month for making tens of millions of dollars through insider trading. A federal grand jury in Manhattan charged Mr. Gupta with one count of conspiracy to commit securities fraud and five counts of securities fraud, all related to tips on Goldman Sachs in 2008.

“Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders,” Preet Bharara, the United States attorney in Manhattan, said in a statement. “As alleged, he broke that trust and instead became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam, who reaped enormous profits from Mr. Gupta’s breach of duty.”

In charging Mr. Gupta, the government is tying up one of the biggest loose ends resulting from the investigation into the Galleon Group, which began nearly five years ago at the Securities and Exchange Commission.

Gary P. Naftalis, a lawyer for Mr. Gupta, said in a statement on Tuesday: “The facts demonstrate that Mr. Gupta is an innocent man and that he acted with honesty and integrity.”

Authorities have broadly pursued insider trading on Wall Street, exacting guilty pleas from a chemist at the Food and Drug Administration, among others, as recently as this month. In the past two years, authorities have charged 56 people with insider trading, including Mr. Gupta; of those, 51 have pleaded guilty or have been convicted of swapping illegal tips about company earnings and other major corporate events. While the majority of those charged have been traders and analysts on Wall Street, Mr. Gupta, 62, is the first executive to be implicated from the upper echelons of corporate America.

The charges are a stunning reversal of fortunes for Mr. Gupta. A native of India, he graduated from Harvard Business School and had a global profile as an adviser to some of the nation’s most iconic companies. He served as a director at Goldman, Procter & Gamble and the parent company of American Airlines. In addition to his professional pedigree, Mr. Gupta was a noted philanthropist, serving in coveted posts with the Bill and Melinda Gates Foundation.

Mr. Gupta’s case has been a tricky one for the government. Though his name came up repeatedly at Mr. Rajaratnam’s trial, both in testimony and in secretly recorded phone conversations, the Justice Department never filed charges against him. The S.E.C. filed an administrative action against Mr. Gupta, and he countersued. The agency later dropped the civil proceedings, but reserved the right to refile the case.

On Wednesday, the S.E.C. filed a complaint against Mr. Gupta and Mr. Rajaratnam, alleging an “extensive insider trading scheme.”

“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets to the disadvantage of investors, shareholders, and fellow directors,” Robert S. Khuzami, director of the S.E.C.’s Division of Enforcement, said in a statement. “Directors who exploit board room confidences for private gain can be certain they will ultimately be held responsible for their illegal actions.”

The strength of the government’s case is unclear, but details that emerged during Mr. Rajaratnam’s trial were explosive. In their original action, the S.E.C. accused Mr. Gupta of passing confidential information about Goldman and Procter to Mr. Rajaratnam, who then traded on the news. The agency also claimed that Mr. Gupta gave Mr. Rajaratnam advance word of Warren E. Buffett’s $5 billion investment in Goldman during the darkest days of the financial crisis, in addition to other confidential information.

But some of the most powerful evidence for prosecutors may not be presented at trial. Information about Goldman Sachs that the government says came from Mr. Gupta was recorded in phone calls between Mr. Rajaratnam and his employees. A judge could say the evidence is hearsay, which means it is too speculative to use in court against Mr. Gupta.

In one call that the jury heard in the courtroom, Mr. Rajaratnam told someone: “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.” In a different call, Mr. Rajaratnam said, “I got a call saying something good is going to happen to Goldman.”

Mr. Gupta’s path to the heights of the global business elite began in India shortly after the country’s independence from Britain. He attended the prestigious Indian Institute of Technology before enrolling at Harvard Business School. After graduating near the top of his class, he joined McKinsey and quickly rose up the ranks of the white-shoe consultancy, which advises a large swathe of the Fortune 500 companies on corporate strategy, executive training and other business matters.

In 1994, at the age 45, Mr. Gupta was tapped to lead McKinsey. During his tenure, the firm expanded its global reach, aggressively moving into emerging markets like India and China.

While he oversaw an era of growth at the consulting firm, his reign was not without controversy. McKinsey encouraged Enron’s transformation from a sleepy energy pipeline company into a high-risk trading operation that ultimately collapsed amid an accounting scandal. Jeffrey Skilling, Enron’s former chief executive, was a McKinsey alumnus.


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