The United States Securities and Exchange Commission (SEC) has accused Ex-Managing Partner of McKinsey Rajat Gupta, of committing insider trading. The SEC has accused Rajat Gupta of passing insider information that helped a hedge fund manager Raj Rajaratnam (of Galleon Management) to illegally profit from Warren Buffett’s $5 billion (Rs. 22,500 crore) investment in Goldman Sachs at the peak of the 2008 recession.
The United States Securities and Exchange Commission (SEC) has accused Ex-Managing Partner of McKinsey Rajat Gupta, of committing insider trading. The SEC has accused Rajat Gupta of passing insider information that helped a hedge fund manager Raj Rajaratnam (of Galleon Management) to illegally profit from Warren Buffett’s $5 billion (Rs. 22,500 crore) investment in Goldman Sachs at the peak of the 2008 recession. SEC alleged that the total illicit profits made by the Galleon Tech funds by virtue of their trading based on Rajat Gupta’s material non-public information concerning Goldman Sachs’s second quarter of 2008 results exceeded $13.6 million (Rs. 61 crore) and may have gained upto $18 million (Rs. 81 crore).
Rajat Gupta is represented by star defense attorney and Partner Gary P. Naftalis of Kramer Levin Naftalis & Frankel LLP.
Indian born Sanjay Wadhwa is at the helm of affairs in the SEC’s Market Abuse Unit (New York) while Attorney for South District of New York Preet Bharara will be leading the trial. The SEC will also be represented by Kevin McGrath and Valerie Szczepanik of the New York Regional Office.
Gary Naftalis issued a press statement calling the SEC allegations totally baseless, noting that there is no accusation his client traded in any of the securities at issue and that Gupta lost his entire $10 million (Rs. 45 crore) investment in the Galleon Group fund mentioned in the SEC's charge.
Galleon has hired Akin Gump’s John Dowd to represent him and Galleon before the SEC. Yesterday, Galleon’s lawyers claimed that the SEC action against Rajat Gupta was simply an effort to destroy a favourable witness. “There is no case, absolutely none”, claimed John Dowd.
The US Securities and Exchange Commission has accused Gupta on the following six grounds:
ET has reported Rajat Gupta’s response to the investigation. In his email to as the Chairman of the Indian School of Business (ISB), he said, “I am stunned and shocked by the proposed action. Let me assure you, I have done nothing wrong. The SEC’s allegations are totally baseless. I am informed by my lawyers that the case is based on speculation and unreliable third-hand hearsay”.
WSJ Law Blog has been following this case in great detail. There is an interesting read about Galleon’s lawyers moving the court to use their Blackberry cellphones inside court premises. The judge who denied the use of Blackberry questioned why nine lawyers who represent Galleon needed to use their Blackberry.
Gupta is an alumni of the Harvard Business School and the Indian Institute of Technology. Gupta was previously the Managing Partner of McKinsey and has also served on the Boards of Goldman Sachs Group and Proctor & Gamble (P & G). The accusation points out to disclosing confidential non-public information obtained by Gupta during his duties as a Member of the Board of Directors of the Goldman Sachs and P & G. Gupta shared confidential non-public information with Raj Rajaratnam, Managing Partner of hedge fund investment company Galleon Management. Rajaratnam in turn, either caused the Galleon hedge funds that he managed to trade based on the confidential non-public information, or passed the information on to others at Galleon and caused trades based on the information.
Gupta along with Rajaratnam (and others) is also, the Founding Partner and the Chairman of New Silk Route Partners LLC, an investment firm that was originally called Taj Capital Partners.