Securities Law

Indictment Suggests Business Dealings Are Gupta's Motivation for Insider Tips Worth $23M

An indictment unsealed today accuses former Goldman Sachs board member Rajat Gupta of providing insider tips to hedge fund founder Raj Rajaratnam, including advance information about Warren Buffett’s $5 billion investment in Goldman.

Gupta was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud, according to a press release (PDF), the Wall Street Journal (sub. req.) and the Los Angeles Times blog Money & Company. Prosecutors claim Gupta’s tips helped Rajaratnam’s Galleon group make profits or avoid losses of $23 million, according to Money & Company.

Gupta isn’t accused of receiving money for revealing secrets learned from his position as a board member at Goldman and Procter & Gamble. Instead, prosecutors are expected to argue that Gupta was motivated by a friendship and business dealings with Rajaratnam. According to the indictment posted by the Wall Street Journal Law Blog, Gupta invested in Galleon funds and also formed investment funds with Rajaratnam.

According to the Wall Street Journal, “The government is expected to argue that the relationship between the two men, who socialized and invested together, is emblematic of the back-scratching that pervades the corporate world and can sometimes veer into insider trading.”

Gupta’s lawyer, Gary Naftalis, says his client is innocent. He told the Wall Street Journal that Gupta lost his entire investment with Rajaratnam in one of the investment funds, “negating any motive to deviate from a lifetime of probity and distinguished service.”

Prior coverage: “Is It Insider Trading if Tips Don’t Result in Payoff? Reported Gupta Charges Will Test Theory”

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