Rajat Gupta, a former Goldman Sachs board member, has been charged with insider trading.After Gupta told him that Berkshire Hathaway was going to invest in Goldman before it was public, Raj made $1 million trading on Goldman stock – in ONE day.
He allegedly gave information about Goldman to Galleon hedge fund manager Rajaratnam at least 3 other times.
Here’s what the SEC alleges Gupta told Raj about Goldman Sachs:
1. Gupta apparently gave information about a call on which Lloyd Blankfein had told him that the second quarter returns in 2008 would be better than expected. After Gupta called him, Raj bought 5,500 of June $170 call options on June 11 (the share price opened at $167 that day) and on June 11 and 12th bought over 350,000 shares.
He sold the call option on June 16th and earned $7 million. He sold more on June 17th and earned $6.6 million.
2. He also reportedly gave information to Rajaratnam about Goldman’s 4th quarter earnings in 2008 — telling him that Goldman would earn less than analyst-expected $2.50 per share. He told Raj that Goldman would actually lose $2 per share — just 23 seconds after hanging up with the Board. Raj avoided losses of $3 million.
3. Gupta gave information to Rajaratnam about Goldman becoming a bank holding company. On September 22 2008, just after he found out that the Board approved Goldman Sachs becoming a Bank Holding Company, Gupta told Raj, who then bought 80,000 shares.
4. ALSO, Gupta told Rajaratnam that Berkshire Hathaway would make a $5 billion investment in Goldman before he did in September 2008. On September 23 2008, Raj got another call from Gupta. Gupta told him that Berkshire would invest, and Galleon purchased another 175,000 Goldman shares.
On September 24th, Raj liquidated the Goldman shares he bought because of the Berkshire investment. He made $900,000.
In total, Raj’s total gains from the Gupta information (about Goldman) were over $13.6 million.
Here’s what the SEC alleges Gupta told Raj about Proctor and Gamble:
1. Gupta may have told Raj on January 29,2009 that P&G would report sales growth lower than expected. All the SEC knows is that Gupta called him on January 29th, that Raj sold short 180,000 shares of P&G on the same day (he earned $570,000) and that Raj told someone he got inside information from someone on the board so that they could trade on the information too.
Gupta is denying everything, by the way.
Gary Naftalis, Gupta’s lawyer says that the “SEC’s allegations are totally baseless,” and his client “has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder.”
From the SEC:
The SEC’s Division of Enforcement alleges that Rajat K. 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.