Rajaratnam Tipster Surrenders To The FEDS

Rajat Gupta, a former Goldman Sachs Director, surrendered to the federal authorities for charges that he aided and abetted Raj Rajaratnam in the largest insider trading case ever, according to Investment News. According to the article, the men were good friends as well as being investing partners, who helped to support each other’s firms. Apparently no money changed hands for the tips, but rather this was just the culture created by Wall Street for special friendships and the lifestyle of the rich and powerful business people. This marks the 56th time that insider trading charges have been brought by federal prosecutors in New York over the last couple of years. Out of that group, 51 have been found guilty or pleaded guilty. Rajaratnam was convicted and sentenced to 11 years in federal prison.

Both men were drawn to each other by their South Asian heritage, Gupta from Kolkata, India and Rajaratnam from Sri Lanka. This in addition to their stature and power in business circles helped their friendship develop. Although Rajaratnam was far more wealthy, with net worth set at $1 billion, he and Gupta enjoyed each other’s company and liked to invest together. It was not until 2003, that Gupta really got involved in the inner loop of the super-rich because of his deals with Rajaratnam.

Rajat Gupta became a prominent figure in the billionaire hedge fund manager’s case earlier in the year. Gupta, a Harvard educated Indian had formerly been the world wide managing director of the major consulting firm of McKinsey & Company. He had also served on the boards of Proctor & Gamble and the parent company for American Airlines, as well as Goldman Sachs & Company. It is alleged by the SEC that Gupta passed along confidential inside information to Rajaratnam during the peak of the crisis to aid in making his blockbuster trades. During the criminal trial, telephone records introduced revealed that Gupta called Rajaratnam immediately after a Goldman Sachs board meeting on October 23, 2008 where members were told that Goldman was going to report a loss for the first time since 1999. Rajaratnam unloaded his entire position in Goldman shares the next day to save millions of dollars in losses. In another deal on September 23, 2008, Rajaratnam made nearly $1 million when he learned from Gupta that Warren Buffett was going to invest $5 billion in Goldman through Berkshire Hathaway. In January 2009, Gupta again called Rajaratnam with information about Proctor & Gamble’s earnings release. The word was that P&G was going to lose $2 per share and the Street has them making $2.50 per share. The government claims that Rajaratnam ordered his Galleon funds to sell short their 180,000 shares of P&G stock. According to the information released FBI, “his (Gupta’s) eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of 39 seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend.” Manhattan U.S. Attorney Preet Bharara said that Mr. Gupta “ became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam.”

Gupta faces charges of five counts of securities fraud and one count of conspiracy. Each fraud charges carries a prison sentence of up to 20 years, so he potentially could be sentenced to more than 100 years in federal prison for his tips. He surrendered in Manhattan federal court on Wednesday, October 26, 2011, which a major Indian holiday called the “Indian festival of lights.” According to one of Gupta’s personal and childhood friends, “he believes he is innocent and the gods will protect him if humans fail.”

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