Depicting moment-to-moment detail, the Securities and Exchange Commission on Tuesday laid out civil fraud charges linking a former Goldman Sachs board member to the biggest hedge-fund insider-trading case ever.
It’s a portrait of corporate board meetings leading to secret phone calls, stock-trading orders and huge illicit profits made within hours.
The SEC charged Rajat Gupta, who has also served on the boards of Procter & Gamble and the parent company for American Airlines. Gupta was a guest at President Barack Obama’s first state dinner.
But at the height of the financial crisis, Gupta passed along privileged financial information that helped enrich the target of the government’s sweeping probe, the SEC alleges.
A pivotal moment came Sept. 23, 2008. Gupta listened via teleconference as the Goldman Sachs board approved an offer from Warren Buffett’s Berkshire Hathaway to invest $5 billion in the banking giant.
Seven minutes before the stock markets closed, Gupta hung up. He dialed Raj Rajaratnam. The two men spoke briefly. Within a minute, Rajaratnam directed his hedge fund, the Galleon Group, to buy 175,000 shares of Goldman stock. The next day, he would sell them. His profit was nearly $1 million.
Those and other allegations are at the core of charges suggestive of a financial thriller. The SEC spells out how it says Gupta gave Rajaratnam financial details about Goldman and P&G that hadn’t been made public.
Those leaks enriched Rajaratnam’s funds by nearly $18 million, officials say.
Rajaratnam is at the center of the government’s broad insider-trading investigation. His hedge fund delivered profits exceeding $50 million, thanks to inside information about public companies’ earnings and plans for mergers and acquisitions, prosecutors say.
In their investigation, criminal investigators relied on wiretaps and search warrants, tactics normally reserved for cases against drug dealers and mobsters.
Now, Gupta is being charged in that broadening probe.
Rajaratnam, a one-time billionaire who is free on $100 million bail, has pleaded not guilty to criminal securities-fraud charges. He has maintained that he traded only on information already public. He is scheduled to go on trial next week in a probe that has produced criminal charges against more than 25 people. Of those, 19 have pleaded guilty, with a majority of them cooperating.
