The U.S. Securities and Exchange Commission has charged former Goldman Sachs director Rajat Gupta with illegal insider trading for allegedly passing tips to convicted hedge fund manager Raj Rajaratnam. The SEC also filed new insider trading charges against Rajaratnam.
According to the SEC’s complaint, filed in federal court in Manhattan, Gupta illegally tipped Rajaratnam with insider information about the quarterly earnings of both Goldman Sachs and Proctor & Gamble when he served on the boards of those companies, as well as passing along a tip of an impending US$5 billion investment in Goldman by Berkshire Hathaway at the height of the financial crisis.
Rajaratnam, the founder of hedge fund firm Galleon Management, who was recently convicted of multiple counts of insider trading in other securities stemming from unrelated insider trading schemes and sentenced to 11 years in prison, allegedly caused various Galleon funds to trade based on Gupta’s inside information, generating illicit profits or loss avoidance of more than US$23 million, the SEC said.
The allegations have not been proven. The SEC is seeking permanent injunctions; disgorgement of all trading profits or losses avoided from unlawful insider trading activity; and civil penalties.
The SEC previously brought an administrative proceeding against Gupta for the conduct alleged in today’s enforcement action, but later dismissed those proceedings while reserving the right to file an action in federal court.
“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets to the disadvantage of investors, shareholders, and fellow directors,” said Robert Khuzami, director of the SEC’s division of enforcement. “Directors who exploit board room confidences for private gain can be certain they will ultimately be held responsible for their illegal actions.”