Goldman Sachs HQ - NYC

Rajat K. Gupta, the high-ranking corporate executive, was accused Wednesday of leaking confidential information while serving as a director at Goldman Sachs Group Inc. and Procter & Gamble Co.

Federal prosecutors unsealed a six-count indictment accusing Gupta of conspiring with convicted Galleon Hedge Fund founder Raj Rajaratnam to trade on information Gupta acquired from his seat on the corporate boards. The indictment claims that in September 2008, Gupta called Rajaratnam with inside information on Berkshire Hathaway’s $5 billion investment in Goldman Sachs, “approximately 16 seconds” after participating by telephone in a Goldman Sachs board meeting.

The indictment states: “Approximately 16 seconds after Rajat K. Gupta, the defendant, disconnected his telephone from the special meeting of the Goldman Sachs Board on September 23, 2008, at approximately 3:54 p.m., Gupta’s assistant called Rajaratnam at his office in New York, and shortly thereafter, connected Gupta to the call. During that call, Gupta disclosed inside information to Rajaratnam concerning Berkshire Hathaway’s investment in Goldman Sachs.”

Rajaratnam was sentenced to 11 years in prison 2 weeks ago.

Gupta is the highest ranking corporate executive in the wide-ranging investigation which federal prosecutors call the biggest inside-trading ring ever prosecuted.

Gupta is charged with conspiracy and five counts of securities fraud. The SEC filed parallel charges, reports Courthouse News.

According to the indictment, Gupta served on the corporate boards during the time covered by the federal indictment, in which capacity he “regularly received confidential information about P&G’s earnings, contemplated and actual corporate transactions, and other significant developments prior to P&G’s public announcement of such information.”

Prosecutors say Gupta and Rajaratnam, the head of the Galleon Fund, had “numerous business dealings with each other” and “a personal relationship and friendship.”

Further allegations from the 22-page federal indictment:

• Gupta invested millions of dollars in at least two Galleon offshore funds, through an offshore entity he created. The value of those investments was $2.4 million on March 31, 2005.
•  In 2005, Gupta, Rajaratnam and a third person formed an investment fund called Voyager Capital Partners. Gupta put $5 million into it, and Rajaratnam put in $40 million. Gupta put another $5 million into it in 2007, giving him a 20 percent equity interest in it, to Rajaratnam’s 80 percent.
• In 2006, Gupta, Rajaratnam and others “became founding partners of a private equity fund focused on investments in emerging markets in Asia.” Gupta, chairman of the private equity fund from its beginning until about March 2010, committed $22.5 million to the fund; Rajaratnam put in $50 million.

According to prosecutors, from “at least in or about 2008 through January 2009,” Gupta and Rajaratnam, and others, known and unknown, “participated in a scheme to defraud by disclosing material, nonpublic information relating to Goldman Sachs and P&G (the ‘inside information’) and/or executing securities transactions on the basis of the inside information.”

Gupta obtained the inside information in his capacity as a member of the two boards, and “disclosed the inside information to Rajaratnam, with the understanding that Rajaratnam would use the inside information to purchase and sell securities,” the complaint states.

Rajaratnam then “caused the execution of transactions in the securities of Goldman Sachs, P&G, and other companies on the basis of the inside information, and shared the inside information with other coconspirators at Galleon, thereby earning illegal profits (and illegally avoiding losses) of millions of dollars.” (Parentheses in indictment.)