IIT Delhi alumnus and Harvard MBA Rajat Kumar Gupta has been charged with insider trading by the Securities and Exchange Commission.
The SEC today charged Rajat Gupta with illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at Goldman Sachs and Procter & Gamble as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.
The SEC alleges that Gupta was at the time a direct or indirect investor in some of the Galleon hedge funds and had other potentially lucrative business interests with Rajaratnam.
Rajat Gupta, 61, is a former board member of Goldman Sachs and a sitting board member of Procter & Gamble and American Airlines. He was also also the former chief of global consulting firm McKinsey.
Rajat Gupta – A Profile
We are writing the following from memory but if we remember correctly, Rajat Gupta’s wife is also an IIT-Delhi alumnus.
The couple has four daughters.
Rajat Gupta’s parents died when he and his siblings were young.
It’s safe to assume that Gupta was an extraordinarily motivated and brilliant student.
Among desis in the U.S., Rajat Gupta is among the few who have made it to the highest echelons of the corporate world.
Details of SEC Charges
Here’s an excerpt from the SEC announcement on Rajat Gupta a short while ago:
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….
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.
Gupta served as a Goldman board member from November 2006 to May 2010, and has been serving on Procter & Gamble’s board since 2007.
Read the full SEC announcement here.
Rajat Gupta is innocent until proven guilty. But if found guilty, he could face stiff penalties.
SEC Complaint Against Rajat Gupta