Wednesday, 4 March 2015
Last updated 8 min ago
Jan 31 2012 | 10:04pm ET
Federal prosecutors today added a seventh criminal charge against former McKinsey & Co. chief Rajat Gupta, pushing the start of his alleged insider-trading scheme with Galleon Group founder Raj Rajaratnam back by one year.
According to prosecutors, Gupta gave Rajaratnam confidential information about Goldman Sachs' earnings for the first quarter of 2007 in March of that year. Gupta, who served on Goldman's board, participated in a board conference call about those earnings from Galleon's New York offices.
About 25 minutes after the March 12, 2007, call, Rajaratnam ordered a Galleon fund to buy 350,000 Goldman shares, which opened $2 per share higher the following day after Goldman announced its quarterly results.
Later that year, in September, prosecutors say Gupta passed another tip about Goldman's quarterly earnings to Rajaratnam, who bought more than 700,000 Goldman shares as a result.
Prosecutors had previously said that Gupta passed confidential information to Rajaratnam, a longtime friend and business partner, only in 2008 and 2009.
The last illicit tip came in January 2009, a day before Procter & Gamble announced its quarterly earnings. Gupta, a P&G director, participated in a board call at about 9 a.m. on Jan. 29. At about 1:18 p.m. the same day, he spoke to Rajaratnam for about eight minutes. Less than two hours later, Galleon shorted 180,000 P&G shares.
Rajaratnam told a colleague that day "that he had heard from someone on the P&G board certain information concerning P&G's organic sales growth," prosecutors said.
Gupta's lawyers heaped scorn on the new charge.
"The newly added charges—like the ones brought last year—are not based on any direct evidence, but rely on supposed circumstantial evidence," Gary Naftalis said. "The facts in this case demonstrate that Mr. Gupta is innocent of all of these charges, and that he has always acted with honesty and integrity."
Gupta's legal team also offered several glimpses into their planned defense. Earlier this month, Naftalis complained that prosecutors had failed to produce documents showing whether Rajaratnam or other Galleon money managers had sources at Goldman or P&G. Prosecutors said they have "no information, zero, no witness statements, no documents, no type of any kind that anyone other than Mr. Gupta tipped Mr. Rajaratnam or anyone at Galleon about material nonpublic information of Goldman or of Procter & Gamble."
But Assistant U.S. Attorney Reed Brodsky said he would identify a source known as Mr. X to the defense, a move that "would negate rather than support the notion that Mr. X was tipping Mr. Rajaratnam about material non-public information."
The defense also said it planned to show that Gupta's friendship with Rajaratnam was falling apart after the collapse of Lehman Brothers cost Gupta $10 million he had invested with Rajaratnam. Lehman's demise came four months before the alleged January 2009 P&G tip.
"We were unhappy with Mr. Rajaratnam on how we were dealt with and whether we were treated fairly," Naftalis said. "The behavior was inconsistent with going out and tipping him."
Naftalis also said that Berkshire Hathaway reinsurance chief Ajit Jain, a friend of Gupta's, might testify for the defense.
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