MANHATTAN (CN) – A jury convicted Rajat Gupta on Friday of using his position as a board member for Goldman Sachs and Procter & Gamble to fuel the largest inside-trading scheme in history.
Gupta’s tips helped Raj Rajaratnam, the disgraced founder of the Galleon hedge fund, to make billions in illegal profits. Rajaratnam was sentenced to 11 years in 2011.
Gupta had been born an orphan in India and went on to become a titan of finance living in the tony neighborhood of Westport, Ct.. The charges of which he was convicted could put the 63-year-old away for the rest of his life.
Jurors began deliberations Thursday morning and returned with a verdict early Friday afternoon, finding Gupta guilty of one count of conspiracy and three of the five counts of securities fraud that he had faced.
Two of securities fraud counts of which Gupta was convicted concerned Rajaratnam’s purchase of more than $40 million of Goldman Sachs stock in the last minutes of the trading day on Sept. 23, 2008.
At 3:53 p.m., Gupta finished an emergency conference call with the Goldman Sachs board, in which the members leaned that Warren Buffet and Berkshire Hathaway were going to give $5 billion to Goldman Sachs to help right the market, spinning in the early days of the financial crisis, and that the bailout would be announced after the markets closed.
With only seven minutes left in the trading day, Gupta then called Rajaratnam’s office at 3:54. At 3:56, Rajaratnam began ordering hundreds of thousands of shares of Goldman stock worth $43 million.
The following morning, investigators using a court-ordered wiretapped overheard Rajaratnam reference Gupta’s message in call to his principal trader, Ian Horowitz. Rajaratnam and coconspirator Gary Rosenbach earned over $1 million in illegal profits based on this trade.
Gupta’s other securities fraud conviction concerns tips he allegedly gave after learning in board conference call that Goldman stock had dropped $2 – the first decline in the firm’s history as a public company.
Gupta called Rajaratnam 23 seconds after ending that call, and Rajaratnam started to sell his entire interest in Goldman Sachs as soon as the stock market reopened.
Rajaratnam was recorded in a wiretap later that day telling a senior Galleon portfolio manager about Gupta’s apparent tip. The early trades helped Rajaratnam avoid a loss of several million dollars.
The Securities and Exchange Commission estimated that Rajaratnam raked in $33.5 million in illegal profits, and a federal judge ultimately ordered him to more than $156.6 million in criminal and civil penalties
Prosecutors took pains sure to emphasize Gupta and Rajaratnam had been close and longtime friends.
Gupta had been a Galleon investor and co-owned a fund with Rajaratnam that also invested in Galleon. Rajaratnam also invested approximately $50 million and served on the investment committee of the private equity firm called NSR that Gupta chaired. Just before Galleon sank in 2008, Gupta had been poised to step in as its chairman, a position in which he would have earned 15 percent of that fund’s performance fees.
The conspiracy count of which Gupta was convicted carries a maximum sentence of five years in prison and at least $250,000 in fines. Gupta faces 20 years and a $5 million fine for each securities fraud count.
Sentencing is scheduled for Oct. 18, 2012.
Manhattan U.S. Attorney Preet Bharara praised the Gupta verdict.
“Rajat Gupta once stood at the apex of the international business community,” Bharara said in a statement. “Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away.”