Former Goldman board member convicted of insider trading

Michael P. Tremoglie Jun. 18, 2012, 10:51am


NEW YORK (Legal Newsline) - Rajat Gupta, a former board member of Goldman Sachs, was convicted on four counts of insider trading Friday in federal court in Manhattan.

He had led an international consulting firm and was a member of the boards of directors of some of the most prestigious institutions in the United States.

Gupta, 63 of Westport, Conn., was a member of the boards of directors of Goldman Sachs Group, Inc., Procter& Gamble Company, Harvard Business School, Northwestern's Kellogg School of Management, MIT Sloan School of Management and the Lauder Institute at Wharton.

He was also affiliated with American Airlines and the Gates Foundation. He served on the board of trustees of the University of Chicago. He was also the chairman of the International Chamber of Commerce.

U.S. Attorney Preet Bharara stated: "Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away. Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell. Violating clear and sacrosanct duties of confidentiality, Mr. Gupta illegally provided a virtual open line into the board room for his benefactor and business partner, Raj Rajaratnam.

"Almost two years ago, we said that insider trading is rampant, and today's conviction puts that claim into stark relief. It bears repeating that, in coordination with our extraordinary partners at the FBI, we will continue to pursue those who violate the securities laws, regardless of status, wealth, or influence."

According to the Department of Justice, Gupta and Raj Rajaratnam - founder of the Galleon hedge fund who was convicted of insider trading and sentenced to prison for 11 years in 2011 - maintained a close personal and business relationship. Among other things, Gupta described Rajaratnam as a close friend.

Gupta invested his money in Galleon funds while he served as chairman of the international consulting firm; Gupta co-owned a fund with Rajaratnam, which invested its money in Galleon; He served as chairman of a $1.5 billion private equity firm called NSR in which Rajaratnam invested approximately $50 million and served on the investment committee; and Gupta was given the position of chairman of Galleon International in 2008, and expected to receive 15 percent of that fund's performance fees.

Gupta allegedly repeatedly disclosed material, nonpublic information (i.e. insider information) to Rajaratnam that he learned as a Goldman Sachs board member from 2007 through January 2009. Rajaratnam, in turn, allegedly used the illegally obtained information to execute trades with Goldman Sachs. He also allegedly shared the illegally obtained information with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars.

Gupta could receive a maximum sentence of five years in prison and a maximum fine of the greater of $250,000 or twice the gross gain or loss from the offense. He could also receive a maximum sentence of 20 years in prison and a fine of $5 million for of the securities fraud counts. He will be sentenced on Oct. 18.

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