A former member of The Goldman Sachs Group's board of directors was charged today with giving confidential tips to Galleon Management hedge fund founder Raj Rajaratnam. It was the latest allegation in a far-reaching Securities and Exchange Commission investigation of insider trading.
In an administrative complaint, the SEC charged Rajat Gupta with disclosing material non-public information that he obtained while serving as a board member for Goldman Sachs. Gupta allegedly tipped Rajaratnam about matters including Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs before it was publicly announced on Sept. 23, 2008.
According to the SEC, 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, making illicit profits of more than $900,000.
Rajarantnam was arrested in 2009 and faces charges of conspiracy and securities fraud. His trial is scheduled to begin on March 8 in federal court in New York City.
Gupta, the former worldwide managing director of McKinsey & Co., also allegedly revealed confidential financial information about Procter & Gamble Co.’s financial results. Gupta resigned today from Procter & Gamble’s board of directors.
“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, in a press release. “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”
In a written statement, Gupta’s lawyer, Gary Naftalis, called the SEC allegations “totally baseless.”
Naftalis, head of the litigation department at New York’s Kramer Levin Naftalis & Frankel, continued, “Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo.”
Gupta is the special adviser on management reforms to the secretary-general of the United Nations and chairman of the International Chamber of Commerce.