Wednesday, October 26, 2011

Ex-Goldman director to face criminal charges

Rajat Gupta, one of the most prominent business executives to be caught up in the government's wide-ranging insider-trading probe, had been named by prosecutors as an unindicted co-conspirator in the criminal case against hedge fund tycoon Raj Rajaratnam earlier this year. According to Reuters, the former Goldman Sachs director, who also was once the global head of elite consultancy McKinsey & Co, will surrender to the FBI on Wednesday to face criminal insider trading-related charges.

Grupta's attorney, Gary Naftalis is quoted in the Reuters article as saying "Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."

Readers will recall that Rajaratnam, founder of the Galleon Group hedge fund, was convicted in May by a New York federal jury after a two-month trial and was sentenced to 11 years in prison, the longest recorded for insider trading.

Gupta, 62, well-known in the business world after 34 years at McKinsey, had won a seat in 2006 on the board of Goldman. The SEC dropped an administrative case against Grupta in August, but did not give up its ability to sue him civilly. That has not occurred, presumably because of the pending criminal charges.

According to various press reports, the wiretaps on Rajaratnam has him talking about a tip from a board member at Goldman, regarding a pending press release regarding Goldman's historic fourth quarter loss in 2008. Prosecutors presumably believe that the board member is Grupta. That view is bolstered by testimony at Rajaratnam's trial by Goldman's CEO Lloyd Blankfein that Gupta had leaked boardroom secrets, according to Reuters.

Putting those two comments together, there is certainly a basis for a case against Grupta, but the government has a much longer way to go to prove that Grupta leaked material, non-public information. And while it might be true that a defendant does not have to profit from leaking information to be guilty of insider trading, it is going to be extremely difficult to convict someone who might simply be a blabbermouth, if he did not receive anything of value, that is in fact what he did.

Ex-Goldman Direct to Fact Criminal Charges

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