Insider trading: Ex-Goldman director is charged
Insider trading charge brought against Rajat Gupta, a former Goldman Sachs board member.
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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 that was already public. He is scheduled to go on trial next week in a probe that has resulted in criminal charges against more than 25 people. Of those, 19 have pleaded guilty to charges, with the majority of them cooperating.Skip to next paragraph
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Jim McCarthy, a spokesman for Rajaratnam, declined to comment on the civil charges against Gupta.
The case against Gupta will be heard by an administrative law judge at the SEC. That proceeding will determine whether Gupta should pay restitution and civil fines and whether he should be barred from serving as an officer or director of a public company, the SEC said.
Gupta, 62, a Connecticut resident, is also a board member of AMR Corp., the parent company of American Airlines and chairman of Genpact Ltd., a Bermuda-based management contractor that is traded on the NYSE. And he is on the board of Harman International Industries Inc., a consumer electronics company based in Stamford, Conn.
Gupta's list of achievements is long. A guest of the White House at President Obama's first state dinner held for the visiting Prime Minister of India, Gupta is one of India's most high-profile immigrants.
He came to the Harvard Business School in 1971 and joined the blue-chip consulting firm McKinsey right after graduation. Gupta became McKinsey's first non-Western head when he became worldwide managing director of the firm from 1994 to 2003.
"Prosecutors are going after the biggest heads and now it has infiltrated the largest brokerage and hedge funds around," said Andrew Stoltmann, a Chicago securities attorney who has handled insider-trading cases. "We are seeing the reaches of insider trading at the highest level."
The criminal securities fraud against Rajaratnam, who has both U.S. and Sri Lankan citizenship, was announced in October 2009 by federal prosecutors in Manhattan. Prosecutors described it as the largest hedge fund insider-trading prosecution in history. It was also described as the first time investigators made extensive use of wiretaps in an insider-trading probe. The investigative tool is more traditionally used in drug and organization crime probes.
Late last year, prosecutors revealed that the Rajaratnam investigation had resulted in an expanded probe focusing on those in the securities industry who provide insider information about public companies to hedge funds, but disguise the information as the product of research.
If convicted, Rajaratnam faces up to 185 years in prison. Potential penalties in insider-trading cases can sound ominous when the statutory limits are stacked together. But they can shrink dramatically when the cases are resolved.