Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director convicted of passing tips to his friend Raj Rajaratnam, was ordered to pay the bank more than $6.2 million in restitution as a victim of his insider trading.
Goldman Sachs argued that as a result of Gupta’s crimes, it was entitled to $6.9 million in legal fees and other expenses it had spent during a federal probe of the bank by the Manhattan U.S. Attorney’s Office and the Federal Bureau of Investigation, as well as a parallel investigation by the U.S. Securities and Exchange Commission.
Gupta, 64, who sat on the board of New York-based Goldman Sachs and Cincinnati-based Procter & Gamble Co. (PG), was convicted in June of passing information he gathered at board meetings to Rajaratnam, his former business associate who was co-founder of the hedge fund Galleon Group LLC.
“Goldman Sachs has proved by a preponderance of the evidence that 90 percent of its tendered expenses were both necessary and incurred during its participating in the investigation and prosecution,” U.S. District Judge Jed Rakoff, who presided over Gupta’s criminal trial, said in a ruling yesterday.
Rakoff said that he reviewed the more than 542 pages of billing records from Sullivan & Cromwell LLP, which represented the firm during the investigation of both Gupta and Rajaratnam. Rajaratnam, convicted of insider trading in 2011, is serving an 11-year prison sentence.
Gupta was found guilty of leaking tips to Rajaratnam about Goldman Sachs, including information about a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) on Sept. 23, 2008 and a second tip about a quarterly loss at the firm in October 2008.
“We’re pleased the court ordered Mr. Gupta to pay restitution,” said Michael DuVally, a spokesman for Goldman Sachs.
The firm said it was entitled under the Mandatory Victims Restitution Act to recoup legal fees and other related costs that were a “direct and foreseeable result of Gupta’s offense.”
“In convicting Gupta of conspiracy and substantive insider trading violations, the jury necessarily determined that Gupta breached his duty as a director of Goldman Sachs,” said Steven Peikin, a Sullivan & Cromwell partner. “The victim here is Goldman Sachs.”
Peikin had argued that Goldman Sachs was entitled to recover expenses including money it spent conducting an internal investigation; funds spent representing the firm during U.S. criminal and civil investigations of both Rajaratnam and Gupta and expenses paid to Gupta for his defense. Goldman Sachs also said it was entitled to funds it paid the law firm in response to the government’s request for documentation and the preparation of Goldman Sachs witnesses. Goldman Sachs Chief Executive Officer Lloyd Blankfein testified at both Rajaratnam’s and Gupta’s trials and was deposed during the parallel SEC case.
Gary Naftalis, a lawyer for Gupta, declined to comment on the judge’s ruling.
On Oct. 24, Rakoff sentenced Gupta to serve two years in prison and ordered him to surrender to U.S. prison officials on Jan. 8. A federal appeals court allowed Gupta to remain free while he fights his conviction.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
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