Goldman Sachs Insider Trading Scandal: Rajaratnam Faces 20 years in Prison if Found Guilty

Rajat K. Gupta, was accused of insider trading by the US Securities and Exchange Commission as a board member of Goldman Sachs. The charges are devastating and deeply embarrassing for the firm – if the allegations are true, Gupta, a senior executive betrayed everything betrayed the firm and the firm’s clients (including Warren Buffett) by passing on confidential information.

Rajat K. Gupta, was accused of insider trading by the US Securities and Exchange Commission as a board member of Goldman Sachs. The charges are devastating and deeply embarrassing for the firm – if the allegations are true, Gupta, a senior executive betrayed everything betrayed the firm and the firm’s clients (including Warren Buffett) by passing on confidential information.

The former Goldman Sachs director was linked to insider trading at Raj Rajartnam’s hedge fund, Galleon Group, where Gupta was an investor and director of their GB Voyager Multi-Strategy Fund SPC. Regulators allege that Gupta leaked information about the bank’s financial results for the second and fourth quarters of 2008 before they were made public to Rajarantnam.

Gupta is also accused of tipping off the hedge fund manager about the US$5 billion investment Warren Buffet’s Berkshire Hathaway made in Goldman Sachs.

The information is believed to have generated illicit profits and loss avoidance of over US$17 million according to the SEC.

According to Forbes,

Goldman Sachs gave no comments on the insider trading charges against Gupta. Gupta is also currently a board member at Berkshire, Proctor & Gamble and American Airlines.

American Airlines declined to comment, however Proctor & Gamble informed Gupta voluntarily resigned from its board, and the company is fully cooperating with the government’s inquiries.

Gupta’s lawyer, Gary Naftalis issued a statement where he called the SEC allegations “totally baseless”. Gupta lost a US$10 million investment in the Galleon Group fund mentioned in the SEC’s charge.

After the news broke on Tuesday, Goldman Sachs shares fell 1.2 percent. The judicial, regulatory and arbitration proceedings could result in losses of US$3.4 billion .

Gupta denies all charges against him although the SEC has records of calls Gupta made to Raj after he spoke to Goldman Sachs Group Chief Executive Lloyd Blankfein about material information, according to Business Insider.

According to Yahoo news,

Blankfein has agreed to testify for the US government at the upcoming trial of Raj Rajaratnam.

Sri Lankan-born Rajaratnam’s criminal trial, 53, is scheduled to start on March 8 in Manhattan federal court. US prosecutors are calling it the biggest probe of insider trading.

 

Guilty or not guilty? Raj Rajaratnam is accused of making $45 million from confidential information leaked by Gupta. He may spend as long as 20 years in prison if convicted of fraud.