Insider-trading scams can be hard on a friendship. For instance, we doubt that Rajat Gupta has many warm feelings left for his old buddy Raj Rajaratnam. Nor, it seems, is he feeling particularly kindly towards he and Raj’s partner in private equity firm New Silk Road Partners.
Even facing two years in prison, the former McKinsey & Co. chief does not care to be screwed on a business deal. Which is what he says is happening, re: New Silk Road and his old buddy Parag Saxena. Read more »
All things considered, Rajat Gupta would still prefer not to go to jail. Read more »
On a scale of 1 to 10, 1 being standard, 10 being elephantiasis, how big do you think the balls are on the guy who calls up a hedge fund manager 23 seconds after his meeting with fellow board members concludes to leak inside information about that company and then, after being convicted of securities fraud and conspiracy, tells the company, which paid his legal fees, he doesn’t owe them a dime? And that maybe if they put everything into an excel spreadsheet, he’ll think about tossing them a couple dollars, but probably not? Read more »
Well that was fast – and a bit strange. What do you make of the counts on which Gupta was and wasn’t convicted? He was found not guilty on counts 2 and 6 of the indictment:
So he’s off the hook for his work at P&G, with the lesson perhaps being that people will believe much more nefarious things about Goldman than they will about Procter & Gamble. More amazingly, the jury decided that he did not leak confidential information from the 2007 Goldman audit committee call that he seems to have conferenced Raj Rajaratnam into; perhaps they bought the defense that he was having an unrelated conversation with Rajaratnam during the entire duration of the Goldman call. Read more »
The less good news is that a jury found the former McKinsey executive guilty on three counts of securities fraud and one count of conspiracy for passing material non-public information to his friend*, convicted insider trader Raj Rajaratnam. The good news: Read more »
Over the course of the Rajat Gupta insider trading trial, attorneys for the former Goldman Sachs director have attempted to show that while their client was privy to material non-public information about, among others, Goldman and Procter & Gamble, and had an established relationship with Raj Rajaratnam, the hedge fund manager currently doing eleven years for trading on material non-public information, their client had no role in helping Raj-Raj score his ill-gotten gains. Last Monday the defense put a witness on the stand who told the jury that while once close, Gupta wasn’t even invited to Rajaratnam’s “lavish 50th birthday party that took place in Kenya,” ergo there is no way Rajat would’ve shared inside info with the guy. This week, the team was hoping to play wiretaps of conversations that took place between Rajaratnam and Goldman executive David Loeb, who they claim is the actual person who tipped off the Galleon manager. Unfortunately: Read more »
I’ve occasionally entertained myself in the last few weeks by building a fantasy-universe defense for Rajat Gupta in which he was a well-meaning but somewhat bumbling director trying to raise money for Goldman and socialize with his buddy Raj Rajaratnam but never in his wildest dreams considering giving Rajaratnam illegal insider tips in exchange for “some modest benefit” to himself. That doesn’t seem to be going well, does it? If you’re rooting for the defense, you can’t be thrilled by the sheer number of board-meeting/call-to-Raj/profitable-trade sequences, the evidence of possible financial benefits to Gupta, and most disappointingly of all the fact that Gupta is not going to get up on the stand and explain how this was all a big misunderstanding.
So let’s overcorrect and declare him guilty and move right into sentencing. A while back I put up a chart that used some basic inputs and rudimentary knowledge of the sentencing guidelines to predict how insider traders would be sentenced, and it worked okay. In particular, it gave Raj Rajaratnam just over 10 years in jail; a judge gave him 11.*
Since then there have been more Galleon convictions and sentences, none of which are wildly out of line with predictions. There was also Garett Bauer and Matthew Kluger, the “thuggish” insider trader who got a record-setting sentence for their 17-year, $37mm insider trading scheme. Here’s an update of the chart for Rajat Gupta’s consideration: Read more »
Surely everyone has been on a boring call in listen-only mode, and gotten another call, and picked it up on the handset while leaving the first call on in the background just in case anyone was like “and what do you think Rajat? Rajat? Rajat are you there?” But you wouldn’t expect anyone to make a federal case of it:
Phone records entered into evidence showed that on March 12, 2007, at about 11:31 a.m., Mr. Gupta, from the Connecticut offices of McKinsey, participated in a Goldman board audit committee call that lasted 15 minutes. The meeting was to offer a preview to the directors of the earnings announcement that would be released the next day. That same day, at 11:32 a.m., records show that a phone number at Galleon called Mr. Gupta’s line in Connecticut — a call that also lasted 15 minutes.
During cross-examination, a lawyer for Mr. Gupta got [wonderfully named FBI agent Joe] Barnacle to concede that there was not a way to determine whether these calls were connected to each other or were merely two separate calls.
Honestly, if you looked at my phone records from the times I was actually … um … employed as some sort of professional, you’d probably find equal-and-overlapping calls with at least a quarter of the board calls, org calls, update calls, and other mass time-wasters that I dialed in to. That doesn’t mean I plugged anyone nefarious into those calls – it just means I was bored and/or taking care of more pressing things and/or ADD. Of course I never participated in any board calls as a director, but still – that call was for management to tell the audit committee what earnings would be, not to glean Gupta’s consulting wisdom. Read more »
What motivates people to share material non-public information with a person they know will use it for profit? For some, it’s simply about greed. For others, it’s about the thrill. For yet others, it’s about pillow talk. For Rajat Gupta, the McKinsey director currently on trial for allegedly passing inside information to Raj Rajaratnam, it’s about friendship, according to prosecutors who are trying to make the case that Raj and Rajat were the best of buds and that’s what buds do. They they back each other up when they drunkenly hit on the girlfriend of the wrong guy at the bar, they stand up as best men at each others’ weddings, they pick up the phone and say “Buy GS” when they know for a fact Warren Buffett is about to do so, too. And although attorneys representing Gupta don’t deny the two were thick as thieves, they argue that while perhaps back in the day Rajat would have provided useful information to Raj, there is no way he would have done so after Big R twice violated the bonds of friendship. In the first instance, there was this:
Defense attorneys have argued that Messrs. Gupta and Rajaratnam had a falling out in fall 2008 after Mr. Gupta lost his entire $10 million investment in a fund managed by Mr. Rajaratnam and therefore wouldn’t have passed along inside information…The precise timing of their relationship’s deterioration could be crucial in proving Mr. Gupta’s guilt or raising doubts in the minds of jurors about whether he conspired to commit securities fraud…Defense attorneys have said Mr. Gupta was furious at Mr. Rajaratnam in the fall of 2008, when Mr. Gupta’s $10 million investment in a fund called Voyager Capital Partners Ltd. evaporated. According to Mr. Kumar’s testimony, Mr. Gupta felt Mr. Rajaratnam’s negligence had allowed Voyager to collapse.
And then this happened: Read more »
After Raj Rajaratnam got what prosecutors say was an illegal tip about Goldman Sachs Group Inc. (GS), a partner at Galleon Group LLC who was excluded from the trade turned red-faced and angry, a witness at the Rajat Gupta trial testified. Prosecutors claim that Gupta, who was a Goldman Sachs director, tipped Rajaratnam on Sept. 23, 2008, that Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) would make a $5 billion investment in the firm…Ananth Muniyappa, then a Galleon trader, told jurors yesterday that Rajaratnam instructed him to hurriedly buy Goldman Sachs shares that day, before the Buffett deal was announced. Today, Muniyappa described the reaction of Leon Shaulov, the Galleon senior portfolio manager who hadn’t bought shares in Goldman Sachs, when the Buffett transaction became public and the shares rose after the close of trading on the New York Stock Exchange. “He was pretty angry,” Muniyappa told jurors. “Hair all over the place, red face, eyes popping out.” [Bloomberg]
There is much to like in this morning’s Journal article about the Rajat Gupta insider trading prosecution, including a nice illustration of how the inside information that Gupta allegedly passed to Raj Rajaratnam actually seems to have been out in the market already. But let’s start with the transcript of the call between Raj Rajaratnam and his trader Ian Horowitz, which the Journal has redacted not for confidentiality but for saltiness:
Just so you can see Raj Rajaratnam saying “fuck” a lot, the full transcript of that call is here. But, anyway, the Journal story: Read more »