Goldman Sachs Group Inc. investor James Mercer, in a lawsuit against former board member Rajat Gupta in which the bank is a “nominal plaintiff,” filed court papers opposing a motion by the defendant to dismiss the case.
In the lawsuit, Mercer alleged Gupta disclosed confidential bank information to Galleon Group LLC co-founder Raj Rajaratnam, the hedge-fund manager who was later convicted of insider trading. Gupta has been charged by federal prosecutors in connection with the Rajaratnam probe.
“Gupta did not provide confidential information about the Goldman Sachs Group Inc. to Raj Rajaratnam without purpose,” Mercer said in the filing today in Manhattan federal court. “He did it for pecuniary gain.”
Gary Naftalis, Gupta’s lawyer, declined to comment on the filing.
In March, the U.S. Securities and Exchange Commission started administrative proceedings against Gupta over claims of securities fraud. Mercer sued in June, seeking to recover short-swing profits generated by Galleon trades in Goldman Sachs stock. Short-swing profits are profits made by an insider on the purchase and sale, within six months, of company stock.
Mercer claimed that Gupta, who as a Goldman Sachs director is considered a company insider, should be deemed the legal beneficiary of the Galleon trades. Gupta was alleged by the SEC to have given Rajaratnam tips about Goldman Sachs’s quarterly financial results before they were made public.
In seeking to dismiss Mercer’s suit in November, Gupta said, “the complaint’s allegations are all about tipping and not about trading by Mr. Gupta. The complaint fails to allege a purchase or sale by Mr. Gupta of even a single share of Goldman Sachs stock.”
Mercer countered today that Gupta, by owning Goldman Sachs shares, benefited from Rajaratnam’s trades.
Andrea Raphael, a spokeswoman for New York-based Goldman Sachs, didn’t immediately return a call seeking comment on the filing.
Mercer contacted Goldman Sachs after the SEC proceedings began in March and demanded that it initiate legal action against Gupta, according to court papers.
Goldman Sachs was made a nominal plaintiff because it’s the statutory beneficiary of any illegal profits from trades prompted by Gupta’s tips, Mercer argued in his complaint. He also claimed that Gupta benefited from the illegal trades as an investor in Rajaratnam’s funds.
Gupta was indicted by a federal grand jury in October on five counts of securities fraud and one count of conspiracy to commit securities fraud.
Rajaratnam was convicted on insider-trading charges and is serving an 11-year prison sentence in Ayer, Massachusetts.
The case is Mercer v. Gupta, 11-3828, U.S. District Court, Southern District of New York (Manhattan).