Goldman Sachs Banker in Probe for More Than Two Years
Federal prosecutors in Los Angeles are investigating Korenberg, a banker at Goldman Sachs’s San Francisco office, and Paul Yook, a former Galleon fund manager, for insider-trading involving transactions in the health-care industry, said a person, who didn’t want to be identified because the investigation isn’t public.
Korenberg hasn’t been accused of giving inside tips directly to Galleon Group co-founder Raj Rajaratnam, said John Hueston, the banker’s lawyer in Los Angeles.
“There was an investigation of insider trading but it had nothing to do with Raj Rajaratnam,” Hueston said yesterday in a phone interview. “That’s very significant. He is still at Goldman Sachs and he has done nothing wrong and Goldman Sachs has stood behind him and continues to stand behind him.”
Goldman Sachs has been aware of the allegations for more than two years, conducted its own investigation and has fully cooperated with the U.S., said Michael DuVally, a spokesman for the New York-based bank, in an e-mail. Korenberg “remains actively employed,” DuVally said.
Among the transactions believed to be under investigation is Abbott Laboratories Inc. (ABT)’s acquisition of Advanced Medical Optics Inc. in 2009, the person familiar with the investigation said. Korenberg worked on the Goldman Sachs team that advised Advanced Medical Optics, according to The Deal magazine.
The U.S. Securities and Exchange Commission last year reached a settlement with four people, including former Major League Baseball player Doug DeCinces, who were accused of getting inside tips about the deal and buying Advanced Medical shares.
The source of the information wasn’t disclosed in court filings and was only described as an Advanced Medical employee “directly involved” in the transaction. When the settlement was announced in August, the SEC said its investigation was continuing.
The existence of the California investigation was disclosed in court proceedings in New York involving Rajat Gupta, the former Goldman Sachs director who’s accused of passing illegal tips about Goldman Sachs and other companies to Rajaratnam.
Gary Naftalis, Gupta’s lawyer, said federal prosecutors in New York notified him this month that a Goldman Sachs employee was under investigation by federal authorities in California for passing illegal tips to Rajaratnam. The person, who wasn’t identified, was the third person at the bank alleged to have played a role in insider trading related to Galleon.
Gupta is accused leaking illegal tips to Rajaratnam about the bank as well as Procter & Gamble Co., where Gupta was also a director. He pleaded not guilty to the charges and is scheduled to go on trial May 21.
U.S. District Judge Jed Rakoff, in New York, who is presiding over Gupta’s case, had directed that prosecutors disclose the names of other Goldman Sachs employees who could be the source of inside information for Rajaratnam.
In January, prosecutors said that Rajaratnam had another source who passed him inside information, a Goldman Sachs executive, who Rakoff dubbed “Mr. X.” Prosecutors said the executive passed illegal tips to Rajaratnam about Apple Inc. (AAPL) and Intel Corp. (INTC)
Neither of Rajaratnam’s two other tippers has been publicly identified by the U.S. Naftalis has asserted that the “wrong man” is on trial and has said he will use the information about other tippers to defend his client at trial. He declined to comment on the identity of the two other tippers saying their identities remain under seal.
Korenberg didn’t work on any of the deals involved in the Gupta case and has never been investigated for passing alleged tips to Gupta or Rajaratnam, Hueston said.
“These are entirely false allegations,” Hueston said.
“The multiyear investigation that he has been involved with has resulted in nothing,” Hueston said. “He has never tipped any information, he was never alleged to have tipped any inside information. He has had a distinguished career at Goldman Sachs.”
Hueston declined to comment on the nature of the investigation involving Korenberg.
“I’m not going to elevate the insignificance of that investigation that’s gone on now for more than 2 1/2 years and has found nothing,” he said.
Korenberg’s identity was reported earlier by the New York Times.
Yook co-founded Sedna Capital Management LLC with Rajaratnam’s brother, Rengan in 2004. The two men returned to Galleon in 2007, where Yook managed the Galleon Health Sciences Fund.
Yook didn’t return a call yesterday to a number listed under his name in New York. Laura Eimiller, a spokeswoman for the Federal Bureau of Investigation in Los Angeles, declined to comment on the investigation. Naftalis, Gupta’s lawyer, declined to comment on Korenberg.
The unidentified tipper “allegedly gave material, nonpublic information to Mr. Raj Rajaratnam,” Naftalis said at the hearing. “We obviously would request of the government to get us any and all information relating to this additional source that Mr. Raj Rajaratnam had at Goldman Sachs of nonpublic information as soon as possible.”
Yook and Rengan Rajaratnam were the subject of an insider- trading investigation by the SEC that led to the Galleon prosecution, prosecutors and regulators said at a 2010 pretrial hearing in Rajaratnam’s case.
Yook was questioned under oath by regulators as part of the investigation. Lindi Beaudreault, a lawyer for both funds, was asked about Yook’s questioning under oath by the SEC during that probe, which didn’t result in criminal charges or a civil suit.
“At any time during Mr. Yook’s deposition, did he admit to engaging in insider trading?” Assistant U.S. Attorney Jonathan Streeter asked Beaudreault.
“I am sure he didn’t,” Beaudreault said.
“At any time during his deposition did he describe any suspicion that he had of insider trading?” Streeter asked.
“I don’t really remember about his deposition,” she said.
Prosecutors said Sedna had come under scrutiny for a trade in Align Technology Inc. (ALGN) in which the fund earned $4 million.
Yook was questioned about the trade in a joint interview with the SEC and FBI agents.
“This was the first time that Sedna traded ALGN,” B.J. Kang, an FBI agent who led the criminal investigation, testified at the pretrial hearing. “The SEC interviewed Yook and Mr. Yook denied any wrongdoing. Mr. Yook was incredibly nervous during his testimony,” Kang said.
Since 2009, insider-trading and securities fraud charges have been filed against at least 64 people in the U.S. investigation. At least 59 people have either pleaded guilty or been convicted at trial. They include Rajaratnam, who is serving an 11-year prison term.
Goldman Sachs named Korenberg on a list of 272 managing directors in November 2009.
A woman carrying a white dog at Korenberg’s brown, two- story home in the Pacific Heights neighborhood of San Francisco, said, “Sorry” and closed the door when asked for comment about the investigation. Korenberg bought the 2,640-square-foot, four- bedroom home built in 1900, for $2.6 million in 2010, according to real-estate website blockShopper.com.
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