Tuesday, 28 March 2017
Last updated 9 hours ago
Oct 27 2011 | 6:46am ET
Rajat Gupta denied that he violated insider-trading laws when he passed information to Galleon Group founder Raj Rajaratnam during his first court appearance yesterday.
Gupta's lawyer entered a plea of not guilty to five securities fraud and one conspiracy charge. The former McKinsey & Co. chief, the most prominent person of the now 28 charged in the Galleon case, was released on $10 million bail, secured by his Westport, Conn., home.
According to prosecutors, Gupta served as the "illegal eyes and ears" for his longtime friend and business partner, Rajaratnam, on the boards of some of America's most well-known companies, notably Goldman Sachs. Prosecutors said that Gupta passed confidential information about both Goldman and Proctor & Gamble to Rajaratnam, on one occasion only seconds after he learned them.
Gupta is accused of tipping Rajaratnam about Berkshire Hathaway's $5 billion investment in Goldman in 2008 and an unexpected loss posted that year. According to the indictment, Gupta called Rajaratnam with the latter news just 23 seconds after he hung up from a Goldman board conference call.
Gupta did not testify at Rajaratnam's trial, but his voice was heard in several phone calls with the hedge fund manager, who was convicted and earlier this month sentenced to 11 years in prison. But Goldman CEO Lloyd Blankfein did take the stand, testifying that the information Gupta passed to Rajaratnam was confidential.
Gupta's lawyer argued that his client neither traded on inside information nor passed it to Rajaratnam with the expectation he would. But U.S. Attorney Preet Bharara said that Rajaratnam "reaped enormous profits from Mr. Gupta's breach of duty," profits that Gupta was in a position to share as an investor in Galleon.
But Gary Naftalis, Gupta's lawyer, said that his client lost his entire $10 million investment with Galleon.
"We are confident that these accusations—which are based entirely on circumstantial evidence—cannot withstand scrutiny and that Mr. Gupta will be completely exonerated of any wrongdoing," Naftalis said.
In addition to the criminal charges, Gupta was yesterday hit—for the second time—with civil charges by the Securities and Exchange Commission. The SEC had previously dropped its plan to subject Gupta to an administrative proceeding to allow the criminal investigation to proceed, agreeing that if it were to refile charges, it would do so in U.S. District Court.