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Goldman Sachs’s Gupta Did Business With Rajaratnam

Rajat Kumar Gupta, board member of Goldman Sachs Group Inc.
Rajat Kumar Gupta, seen here as senior partner emeritus at McKinsey & Co. Inc. and a board member of Goldman Sachs Group Inc., listens during a panel discussion at the World Economic Forum in Davos, last year. Photographer: Michael Wuertenberg/ via Bloomberg

Rajat Gupta, the Goldman Sachs Group Inc. director who is being investigated by U.S. authorities over his links to Galleon Group LLC founder Raj Rajaratnam, had a long-standing business relationship with the billionaire hedge fund manager.

Interviews, public records, lawsuits and regulatory filings show a 13-year history of co-investing and other business collaborations between Gupta, 61, the former worldwide head of consulting firm McKinsey & Co., and Rajaratnam, 52, the central figure in the Galleon insider trading probe.

Rajaratnam has a stake in a fund managed by New Silk Route NSR Partners LLC, founded by Gupta and three others in 2006 to invest in South Asian companies, according to a New Silk Route spokeswoman. The fund owns stakes in at least 11 Indian companies, including cell phone tower operator Reliance Infratel Ltd. and the Cafe Coffee Day chain.

“Mr. Rajaratnam has had a well-known relationship with Mr. Gupta for many years, and it is one that he is both proud and fond of,” Rajaratnam’s spokesman, Jim McCarthy, said yesterday in a statement. “Their association as investors has led to many successful ventures around the world and made a large and positive impact for a long list of worthy businesses and charities. But just as important, they have always conducted those efforts with integrity and diligent attention to sound, ethical practices.”

Criminal Charges

Rajaratnam, who was arrested Oct. 16, is fighting criminal charges and U.S. Securities and Exchange Commission civil claims that he used inside information to trade shares of companies including Advanced Micro Devices Inc. He denies any wrongdoing.

U.S. investigators are examining whether Gupta tipped off Rajaratnam to a $5 billion investment in Goldman Sachs by Warren Buffett’s Berkshire Hathaway Inc., a person with direct knowledge of the inquiry said April 23.

“In any insider trading investigation, prosecutors will be looking at relationships to try to determine if any improper information was passed between them,” said Robert Mintz, a former federal prosecutor in New Jersey who is a partner with McCarter & English. “The nature of the relationship, the length of the relationship, the frequency of contact and the subsequent investing strategy are all areas that are likely to be scrutinized.”

Gupta, who earned an MBA at Harvard Business School, serves on the boards of American Airlines parent AMR Corp., Procter & Gamble Co., Harman International Industries Inc., Genpact Ltd., the business outsourcing company, and Russia’s Sberbank. Gupta announced earlier this year he would not seek re-election to the Goldman Sachs board.

‘Business Dealings’

Gupta’s attorney, Gary Naftalis of Kramer, Levin, Naftalis & Frankel LLP, denied that his client had done anything wrong.

“During the course of his long career, Rajat Gupta has been involved with many business dealings and philanthropic activities,” he said in a May 4 statement. “In all his activities, he has always conducted himself with unquestioned integrity.”

Goldman Sachs stock fell $3.86, or 2.6 percent, to $144.33 at 2:26 p.m. in New York Stock Exchange composite trading.

Gupta and Rajaratnam have ties through Indian business organizations. In 2005, they were speakers at an Indian Institute of Technology conference. The two men and their wives, Anita and Asha, attended galas staged by the American India Foundation, on whose council of trustees both served. In May 2009, they were among the “creme de la creme crowd” that dined on Tandoori lamb chops, raising $1.5 million for charity in an auction while honoring KKR & Co. co-founder Henry Kravis, according to Indian-American society website Lassi With Lavina.

Personal Investments

In 1997, Gupta and Rajaratnam were both looking for personal investments, and when the venture-capital firm TeleSoft Partners LP of Foster City, California, sought limited partners, both men seized the opportunity. By the end of 1998, Gupta’s position was worth $213,570 and Rajaratnam’s $86,451, according to documents filed as part of a lawsuit.

In early 2006, Gupta and Rajaratnam joined Mark Schwartz, the former chairman of Goldman Sachs Asia, and Parag Saxena, the former chief executive officer of Invesco Private Capital, to start a blended hedge fund and private equity company called Taj Capital Partners Asia Fund LP. They planned to hire a 50-person team to invest about $2 billion in India and neighboring countries, according to an investor prospectus.

Change Plans

By December 2006, plans had changed: The fund was renamed New Silk Route, the hedge fund was dropped and the fund size reduced to $1.34 billion, according to documents filed with the SEC in October 2008. While Rajaratnam was not a principal in New Silk Route, he took a stake that by Oct. 30, 2009, was “much less than 5 percent,” said the New Silk Route spokeswoman.

Rajaratnam also created a fund merging the Galleon and New Silk names, called the Galleon International Master Fund SPC Ltd.-New Silk Route Pipe Segregated Portfolio. The SEC filings don’t reveal whether Gupta or New Silk Route were involved in the fund. A Gupta spokesman declined to comment.

Still, in one case, the principals at Gupta’s New Silk Route brought an investment opportunity to Rajaratnam’s fund after passing on it themselves, according to a person familiar with the transaction. The opportunity was a stake in Firstsource Solutions Ltd., a Mumbai-based outsourcing firm that was about to go public. Rajaratnam’s fund went on to accumulate a 4.86 percent stake, according to FirstSource’s 2009 annual report.

In early 2007, New Silk Route and Galleon International Master Fund SPC Ltd. bought stakes of less than 1 percent in Reliance Infratel in a single share agreement executed July 30, 2007, according to a prospectus the company filed with Deutsche Bank AG. Reliance Infratel, a cell phone tower operator, is part of Reliance Communications Ltd., one of India’s largest mobile phone companies.

$1.2 Billion to Invest

When Gupta and his partners launched New Silk Route in 2006, they had $1.2 billion to invest after paying salaries to themselves and staff, according to SEC filings.

In 2007, Gupta and his partners found five companies in India to invest in -- with investments ranging from the $21 million investment in Reliance Infratel to $68 million in INX Media Pvt Ltd., a media and television company with headquarters in Mumbai, according to data collected by Venture Intelligence, a Chennai-based research firm that tracks private equity in India. In 2008, it made two deals, for a total of $64 million.

In February 2009, New Silk Route said “with a substantial portion of capital still uncommitted, the fund will be an active investor in the region over the next 12-18 months,” according to a press release. It made two more deals in 2009, for $76 million. So far this year, New Silk Route has backed two companies to the tune of $135 million, according to Venture Intelligence.

New Silk Route has invested less than half of its fund, or about $468 million in publicly disclosed transactions, according to Venture Intelligence.

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