Raj Rajaratnam’s insider-trading trial may serve as a dry run for a regulatory case against one of his alleged tippers, Rajat Gupta, a former director at Goldman Sachs Group and Procter & Gamble.
The criminal and civil cases of the longtime business partners — based partly on a phone conversation between them wiretapped by the Federal Bureau of Investigation (FBI) — were described by a Securities and Exchange Commission (SEC) lawyer in federal court in Manhattan last week as mirror images of each other, according to a transcript of the hearing.
“The US Attorney’s Office has charged that Rajaratnam received illegal tips from Gupta,” George Canellos, director of the SEC’s New York office, told the judge in Rajaratnam’s criminal case on February 28 in a confidential proceeding that was later unsealed. “We’re charging that Gupta provided those illegal tips to Rajaratnam.”
The SEC case is “the flip side of what the US Attorney’s Office has charged Rajaratnam with,” Canellos said.
Jury selection began yesterday in the criminal insider- trading case of Rajaratnam, the co-founder of the Galleon Group hedge fund who is accused of making $45 million in illicit profits by trading on inside information.
Rajaratnam, 53, is accused of using illegal tips from traders, friends, and corporate officials including Gupta, who prosecutors say is a “co-conspirator” in the scheme. Gupta, 62, the former worldwide director of consulting firm McKinsey & Co, isn’t criminally charged and denies wrongdoing. The SEC filed its administrative action against him on March 1.
SEC ‘preview’
Barry Pollack, a white-collar defence lawyer at Miller & Chevalier in Washington who isn’t involved in the Rajaratnam case, said evidence at the Rajaratnam trial “will clearly give us a preview of what the SEC enforcement action against Gupta will be about.”
“That doesn’t mean that their fates are tied together,” Pollack said. “Each one will be judged individually based on his own state of mind. It’s not uncommon that one person has an improper purpose and the other doesn’t.”
The evidence against Gupta and Rajaratnam includes a tape of a phone call between the two men on July 29, 2008, and phone and trading records showing that Rajaratnam made stock trades immediately after speaking to Gupta, Assistant US Attorney Jonathan Streeter said at another hearing on March 4.
Wiretapped call
Streeter didn’t disclose the content of the phone call, which was secretly wiretapped by the government and will be entered into evidence at the Rajaratnam trial. It wasn’t clear from the transcript of the March 4 hearing whether the call would implicate Gupta in wrongdoing.
Streeter did disclose the content of another taped call of Rajaratnam, but not Gupta, in October 2008. In it, Rajaratnam tells “employees” that “he was told by a Goldman Sachs board member that the investment bank was losing $2 a share,” Streeter said.
Phone and trading records show Rajaratnam bought and sold Goldman Sachs stock “literally within minutes” of his conversations with Gupta, Streeter said in Manhattan federal court on March 4. The SEC made similar allegations in its March 1 administrative action.
