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The Securities and Exchange Commission, the US capital market regulator, has slapped charges of insider trading on Mr Rajat K. Gupta, former board member of Goldman Sachs.
It has been alleged that Mr Gupta passed on inside information to Mr Raj Rajaratnam of Galleon Group about Berkshire Hathaway's proposed $5-billion investment in Goldman Sachs, way back in 2008.
Mr Gupta was on the board of Goldman Sachs from November 2006 to May 2010 and also on the board of Procter & Gamble since 2007.
Apart from giving away Berkshire Hathaway investment plans, Mr Gupta has also been accused of passing on information about both the company's quarterly earnings results to Mr Rajaratnam. The trades, thus undertaken, resulted in generating more than $18 million in illicit profits, and loss avoidance.
The SEC has alleged that Mr Gupta, taking undue advantage of his position as a board member at Goldman Sachs, provided Mr Rajaratnam with information about Berkshire's move to buy $5 billion worth of stake in Goldman Sachs, immediately after a telephonic meeting with the board. The company's public equity offering was also approved by the board in this meeting.
“Within a minute after the Gupta-Rajaratnam call and just minutes before the close of the markets, Mr Rajaratnam arranged for Galleon funds to purchase more than 175,000 Goldman shares. Mr Rajaratnam later informed another participant in the scheme that he received the tip on which he traded only minutes before the market close,” said the order put up on the SEC Web site.
Mr Rajaratnam then liquidated these funds a day after the information was made public, thereby making illicit profits of more than $900,000.
Goldman Sachs made the information public on September 23, 2008.
The order further alleges that Mr Gupta, in a similar vein, passed on information about Goldman's positive second quarter financial results. Company CEO, Mr Lloyd Blankfein, discussed the company's better than expected second quarter results with Mr Gupta and the other board directors on June 10.
“Within minutes after the markets opened on June 11, Mr Rajaratnam caused certain Galleon funds to purchase more than 5,500 out-of-the-money Goldman call options and more than 350,000 Goldman shares,” said the statement.
These were liquidated by Mr Rajaratnam on or around June 17, after the financial results were announced by Goldman Sachs, leading to illicit profits of more than $13.6 million for Galleon funds.
Similarly, when the company was about to announce negative financial results for the fourth quarter of 2008, Mr Rajaratnam – on the information provided to him by Mr Gupta – sold 1,20,000 shares of Goldman Sachs. This helped Galleon avoid losses of around $3 million.
Mr Gupta also passed on information about the company's lower than expected sales growth to Mr Rajaratnam in January 2009. This led to Galleon selling 1,80,000 shares of P&G and amassing illicit profits of $570,000.
Administrative proceedings have been started against Mr Gupta by SEC and the investigations into the insider scheme are still on, said the order.
Mr Rajaratnam was earlier charged by the SEC, along with six other high-ranking corporate executives, in another insider trading scheme which generated more than $25 million in profits.
ISB reposes faith in Rajat Gupta
In a statement, the Indian School of Business, Hyderabad, said that it is confident that Mr Rajat Gupta, who is the Chairman of the ISB Executive Board, will be vindicated.
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