After Bernie Madoff (who turned himself in), the US Securities and Exchange Commission seems to have snared the biggest fish so far in their investigating into insider trading and other rorts on Wall Street.
(This, of course, ignores the biggest rort of all, the subprime crisis and financial crisis in 2007-09 for which very few people have been slapped in the stocks and made to suffer for taking the US and global economies to the edge of collapse.
The SEC has been running a growing investigation into insider trading in US markets, especially targeting hedge funds and specialist advisers across America. It has been going on for about three years, (and continues). Overnight the commission revealed it had fingered one of the most senior people in the American business establishment on insider trading charges, a real corporate blue-blood.
But the charges are about alleged offences not linked to the credit crunch directly, although the key one involves the $US5 billion capital infusion from Warren Buffett’s Berkshire Hathaway, which stabilised Goldman Sachs and helped save it from collapse.
The commission said it had laid civil insider trading charges against Rajat Gupta, the former global head of the McKinsey consulting group who retired and became a board member of Goldman Sachs and Procter and Gamble. He was head of McKinsey for almost 10 years.
He is alleged to have shared secret board information from Goldman Sachs and Procter and Gamble with Galleon Group founder Raj Rajaratnam who goes on trial next week charged in connection with the biggest insider trading case launched by the commission.
The SEC said Gupta was charged with “illegally tipping Galleon Management founder and hedge fund manager Raj Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $5 billion investment by Berkshire Hathaway in Goldman.
“The SEC’s Division of Enforcement alleges that Rajat Gupta, a friend and business associate of Rajaratnam, provided him with confidential information learned during board calls and in other aspects of his duties on the Goldman and P&G boards.
“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.
“The insider trading by Rajaratnam and others generated more than $18 million in illicit profits and loss avoidance. 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.”
Gupta’s lawyers said the claims were baseless and that his client had lost money in these Galleon funds.
“In fact, Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.”
But the SEC charge details reveal that “Gupta disclosed to [Raj] Rajaratnam material non-public information concerning Berkshire Hathaway Inc’s (“Berkshire”) $5 billion investment in Goldman Sachs before it was publicly announced on September 23, 2008, as well as Goldman Sachs’s financial results for both the second and fourth quarters of 2008. Rajaratnam caused the various Galleon hedge funds that he managed to trade based on the material nonpublic information, generating illicit profits and loss avoidance of more than $17 million”
“On the morning of September 23, Rajaratnam placed a call to Gupta, which lasted over 14 minutes. Less than a minute after the call began, Rajaratnam caused the Galleon Tech funds to purchase more than 40,000 additional Goldman Sachs shares …
“A Special Telephonic Meeting of the Goldman Sachs Board was convened at 3.15pm on September 23, during which the Board considered and approved a $5 billion preferred stock investment by Berkshire in Goldman Sachs and a public equity offering…
“Gupta participated in the board meeting telephonically, staying connected to the call until approximately 3.53pm. Immediately after disconnecting from the board call, Gupta called Rajaratnam from the same line. Within a minute after this telephone conversation, at 3.56pm and 3.57pm, and just minutes before the close of the markets, Rajaratnam caused the Galleon Tech funds to purchase more than 175,000 additional Goldman Sachs shares. Rajaratnam later informed a conspirator that he received the information upon which he placed the trades minutes before the close.
“The SEC also alleges Gupta gave Rajaratnam insider information from Goldman’s financial results for the second and fourth quarters of 2008, and from Procter & Gamble’s results for Q4 2008.”
If true this is a massive betrayal of trust. And the SEC cites detailed phone records in the case, just as it has had for the entire Galleon case where several people have already settled charges.
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