Political India: Engaging America

From The Hindu

The high-profile case of Raj Rajaratnam, the hedge fund manager being prosecuted on insider trading charges, has drawn closer to a verdict even as jurors are expected to start finalising their view on his culpability on Monday.

Having entered a not guilty plea, Mr. Rajaratnam's legal team concluded defence arguments this week, building its case around the claim that all the alleged insider trades by Mr. Rajaratnam and his associates at the Galleon hedge fund were only based on publicly available information.

However, prosecutors argued that the most powerful evidence of his guilt was “his own voice,” in a reference to more than 40 secretly recorded phone conversations that he had with other suspects.

One prosecutor, Reed Brodsky, was quoted as saying, “The tapes provided devastating evidence of the defendant's crime in real time... These calls have stripped away the veil of legitimacy.”

In of one of the largest insider-trading cases in recent history, Mr. Rajaratnam was arrested, in October 2009, on 14 charges relating to securities fraud and conspiracy, and allegations that he made $54 million from illicit trades. If he is convicted, he will face up to 25 years in prison, according to sources.

According to reports prosecutors used those wire taps to retrace “the vast and complicated web of informants and traders, giving jurors a step-by-step outline of their case and the evidence supporting it.” Among those implicated through the wire taps and informants was Rajat Gupta, a former Managing Director of consulting giant McKinsey and Company.

The order against Mr. Gupta went on to cite specific instances of large-scale fraud, including an allegation that while he was a member of Goldman's Board of Directors, he illicitly passed on information to Mr. Rajaratnam about Berkshire Hathaway's $5 billion investment in Goldman Sachs and Goldman Sachs' upcoming public equity offering before that information was publicly announced on September 23, 2008. The progress towards the climax of the case came even as a federal judge refused to disallow telephone wire taps as evidence presented in court in a second case against Galleon traders.

From The Hindu

Rajat Gupta (62), a former Managing Director of consulting giant McKinsey and Company and independent Director at banking conglomerate Goldman Sachs, has been charged with insider trading by the United States Security and Exchange Commission.

In an order instituting cease-and-desist proceedings against Gupta, the market regulator alleged that he illegally tipped off Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information on the quarterly earnings at Goldman Sachs and Procter & Gamble and also an impending $5 billion investment by Berkshire Hathaway in Goldman.

The charges brought by the SEC’s Division of Enforcement further alleged that Gupta supplied Rajaratnam, who is already facing impending trial proceedings for insider trading, with “material non-public information” that Gupta obtained during calls with management boards of Goldman Sachs and Proctor & Gamble.

Subsequently, the SEC said, “Rajaratnam used the inside information to trade on behalf of some of Galleon’s hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the firms.”

This trading activity resulted in Rajaratnam and others generating more than $18 million in illicit profits and loss avoidance, the SEC noted, pointing out that Gupta was at the time a direct or indirect investor in at least some of these Galleon hedge funds, and had other potentially lucrative business interests with Rajaratnam.

Robert Khuzami, Director of the SEC’s Division of Enforcement, said “Gupta was honoured with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” adding, “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”

The order against Gupta went on to cite specific instances of large scale fraud by Gupta, including an allegation that while Gupta was a member of Goldman’s Board of Directors, Gupta he illicitly passed on information to Rajaratnam about Berkshire Hathaway’s $5 billion investment in Goldman Sachs and Goldman Sachs’ upcoming public equity offering before that information was publicly announced on September 23, 2008.

The SEC order said, “Gupta called Rajaratnam immediately after a special telephonic meeting at which Goldman’s Board considered and approved Berkshire’s investment in Goldman Sachs and the public equity offering.” It added that 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, leading to Rajaratnam making illicit profits of more than $900,000.

Under the administrative proceedings to follow the imposition of the SEC’s charges, authorities will determine what relief, if any, is in the public interest against Gupta, including “disgorgement of ill-gotten gains, prejudgment interest, financial penalties, an officer or director bar, and other remedial relief,” the SEC order said.