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Insider trading
Rajat Gupta held, pleads not guilty; out on $10mn bail
Ashish Kumar Sen in Washington DC

the case n Gupta has been charged with insider trading for illegally tipping off convicted hedge fund manager Raj Rajaratnam while serving on the boards of Goldman Sachs and Procter & Gamble n The charges carry a potential penalty of 105 years in prison n Gupta illegally tipped off Rajaratnam about Goldman’s positive quarterly earnings. Based on this inside information, Rajaratnam made illicit profits of more than $800,000 in a single day

Rajat K Gupta, the Kolkota-born former director of Goldman Sachs and former global head of McKinsey & Co., on Wednesday pleaded not guilty to insider trading charges.

Gupta has been charged by the Securities and Exchange Commission (SEC) with insider trading for illegally tipping off convicted hedge fund manager Raj Rajaratnam while serving on the boards of Goldman Sachs and Procter & Gamble (P&G).

Gupta was released on a $10 million bail and ordered to surrender his passport. Trial has been tentatively set for April 9.

Gupta was arrested at his home in Westport, Connecticut, early on Wednesday. A federal grand jury in Manhattan later charged him with one count of conspiracy to commit securities fraud and five counts of securities fraud. The charges carry a potential penalty of 105 years in prison.

The SEC also filed new insider trading charges against Sri Lankan-born Rajaratnam, the co-founder of the Galleon Group, who was sentenced to 11 years in prison earlier this month for insider trading.

The SEC’s complaint alleges that Gupta provided Rajaratnam with confidential information learned during board calls and in other communications and meetings. Rajaratnam used that information to trade on behalf of certain Galleon funds, or shared the information with others at his firm who caused other Galleon funds to trade on it ahead of public announcements by the firms. During this period, Gupta had a variety of business dealings with Rajaratnam and stood to benefit from his relationship with him, the SEC alleges. Gupta met Rajaratnam almost 10 years ago through their work for the Indian School of Business in Hyderabad, which Gupta co-founded. Rajaratnam was a major donor to ISB.

According to the SEC, Gupta illegally tipped off Rajaratnam about Goldman’s positive quarterly earnings and a planned $5 billion investment by philanthropist Warren Buffett. Based on this inside information, Rajaratnam arranged for Galleon funds to purchase more than 215,000 Goldman shares. Rajaratnam later informed another participant in the scheme that he received the tip on which he traded only minutes before market close. Rajaratnam caused the Galleon funds to liquidate their Goldman holdings the following day after the information became public, making illicit profits of more than $800,000.

The SEC's complaint also alleges that Gupta tipped Rajaratnam with confidential information that Gupta learned during an October 23, 2008, board posting call about Goldman’s impending negative financial results for the fourth quarter of 2008. As a result of that information, Galleon funds avoided losses of more than $3.6 million.

The SEC’s complaint further alleges that Gupta illegally disclosed to Rajaratnam inside information about P&G’s financial results for the quarter ending December 2008. Galleon funds made illicit profits of more than $570,000 with that information.