Gupta Ordered to Pay $13.9 Million in Inside-Trading CaseJoshua Gallu and Patricia Hurtado
Rajat Gupta, the former Goldman Sachs Group Inc. director found guilty of passing confidential tips to billionaire hedge-fund manager Raj Rajaratnam, was ordered to pay $13.9 million in a related U.S. regulatory case.
Gupta, 64, managing partner of McKinsey & Co. from 1994 to 2003, was convicted last year. He was permanently barred from acting as an officer or director of a public company and from associating with any broker or investment adviser, the Securities and Exchange Commission said yesterday, citing an order by U.S. District Judge Jed Rakoff in Manhattan.
Gupta was found guilty in June 2012 of divulging inside information to the Galleon Group LLC co-founder about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs as well as nonpublic details about the bank’s financial results for the second and fourth quarters of 2008.
Rakoff sentenced Gupta to two years in prison in October and ordered him to pay a $5 million fine. He is free pending his appeal.
“Gupta was guilty of an egregious breach of trust involving multiple material disclosures of inside information,” Rakoff said in an order dated yesterday and made public today.
Gupta’s tips about Goldman resulted in Rajaratnam’s netting $4.6 million, Rakoff said. While the judge declined to grant the SEC’s request to include other monetary losses resulting from Gupta’s tips, he ruled the agency was owed treble damages.
Rakoff said Gupta should be permanently barred from the financial industry.
“His nearly unparalleled level of access to upper echelons of corporate executives throughout the world creates the risk that, notwithstanding his fall from grace, Gupta remains well-placed to repeat his misconduct in the future,” the judge wrote.
Gary Naftalis, Gupta’s attorney at Kramer Levin Naftalis & Frankel LLP, said in a telephone interview that Rakoff sent an order to lawyers in the case last night imposing the penalty of $13.9 million on Gupta. He declined to comment on Rakoff’s order. Gupta has appealed his conviction and the fines, and penalties may be vacated if his conviction is overturned.
“The sanctions imposed today send a clear message to board members who are entrusted with protecting the confidences of the companies they serve,” George Canellos, co-director of SEC enforcement, said in a statement. “If you abuse your position by sharing confidential company information with friends and business associates in exchange for private gain, you will be prosecuted to the fullest extent by the SEC.”
The case against Gupta, who was also a board member of Procter & Gamble Co. and American Airlines Inc., became a centerpiece of a broader insider-trading crackdown by the SEC and federal prosecutors and the Federal Bureau of Investigation in New York.
The investigations mainly targeted hedge funds trading on confidential information. Gupta was the highest-profile corporate figure ensnared in the probe.
Rajaratnam’s 2011 conviction for conspiracy and securities fraud was upheld by a federal appeals court in New York. The hedge fund co-founder was ordered to pay a record $92.8 million penalty in the SEC matter, and to forfeit more than $53.8 million and pay a $10 million fine in the criminal case.
Rajaratnam, 56, is serving an 11-year sentence at the Federal Medical Center Devens in Ayer, Massachusetts.
Gupta’s appeal is U.S. v. Gupta, 12-4448, and the Rajaratnam appeal is U.S. v. Rajaratnam, 11-04416, U.S. Court of Appeals for the Second Circuit (New York).