WASHINGTON (CN) – The SEC on Tuesday sued “a friend and business associate” of Raj Rajaratnam, claiming Rajat Gupta, who served on the boards of Goldman Sachs and Procter & Gamble, provided inside information from which Rajaratnam made more than $18 million. The SEC claims Gupta tipped Rajaratnam to inside information about quarterly earnings of both firms, and about Berkshire Hathaway’s impending $5 billion investment in Goldman Sachs.
Gupta, a Westport, Conn.-based business consultant, was an investor in Rajaratnam’s Galleon hedge funds, which profited from the illegal inside trading, the SEC said.
Rajaratnam is the big fish in what the SEC calls the biggest inside trading investigation in history.
In announcing its lawsuit against Gupta, the SEC said in a statement that “Gupta tipped Rajaratnam about Berkshire Hathaway’s $5 billion investment in Goldman and Goldman’s upcoming public equity offering before that information was publicly announced on Sept. 23, 2008. Gupta called Rajaratnam immediately after a special telephonic meeting at which Goldman’s Board considered and approved Berkshire’s investment in Goldman Sachs and the public equity offering. Within a minute after the Gupta-Rajaratnam call and just minutes before the close of the markets, Rajaratnam arranged for Galleon funds to purchase more than 175,000 Goldman shares. Rajaratnam later informed another participant in the scheme that he received the tip on which he traded only minutes before the 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 $900,000.”
In addition, the SEC said, “Goldman Sachs CEO Lloyd Blankfein called Gupta and various other Goldman outside directors on June 10, when the company’s financial performance was significantly better than analysts’ consensus estimates. Blankfein knew the earnings numbers and discussed them with Gupta during the call. Between that night and the following morning, there was a flurry of calls between Gupta and Rajaratnam. Shortly after the last of these calls and within minutes after the markets opened on June 11, Rajaratnam caused certain Galleon funds to purchase more than 5,500 out-of-the-money Goldman call options and more than 350,000 Goldman shares. Rajaratnam liquidated these positions on or around June 17, when Goldman made its quarterly earnings announcement. These transactions generated illicit profits of more than $13.6 million for the Galleon funds.”
The SEC seeks disgorgement, penalties and an injunction against Gupta.