1. Board Member of Goldman Sachs and Procter & Gamble Charged in Insider Trading Scheme
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Board Member of Goldman Sachs and Procter & Gamble
Charged in Insider Trading Scheme
FOR IMMEDIATE RELEASE
2011-53
Washington, D.C., March 1, 2011 – The Securities and Exchange
Commission today announced insider trading charges against a Westport,
Conn.-based business consultant who has served on the boards of directors
at Goldman Sachs and Procter & Gamble for illegally tipping Galleon
Management founder and hedge fund manager Raj Rajaratnam with inside
information about the quarterly earnings at both firms as well as an
impending $5 billion investment by Berkshire Hathaway in Goldman.
The SEC’s Division of Enforcement alleges that Rajat K. Gupta, a friend and
business associate of Rajaratnam, provided him with confidential
information learned during board calls and in other aspects of his duties on
the Goldman and P&G boards. Rajaratnam used the inside information to
trade on behalf of some of Galleon’s hedge funds, or shared the information
with others at his firm who then traded on it ahead of public
announcements by the firms. The insider trading by Rajaratnam and others
generated more than $18 million in illicit profits and loss avoidance. Gupta
was at the time a direct or indirect investor in at least some of these
Galleon hedge funds, and had other potentially lucrative business interests
with Rajaratnam.
Additional Materials
SEC Order Against Gupta
The SEC has previously charged Rajaratnam and others in the widespread
insider trading scheme involving the Galleon hedge funds.
“Gupta was honored with the highest trust of leading public companies, and
he betrayed that trust by disclosing their most sensitive and valuable
secrets,” said Robert Khuzami, Director of the SEC’s Division of
Enforcement. “Directors who violate the sanctity of board room confidences
for private gain will be held to account for their illegal actions.”
In the order that institutes administrative and cease-and-desist proceedings
against Gupta, the SEC’s Division of Enforcement alleges that, while a
member of Goldman’s Board of Directors, Gupta tipped Rajaratnam about
Berkshire Hathaway’s $5 billion investment in Goldman and Goldman’s
upcoming public equity offering before that information was publicly
announced on Sept. 23, 2008. Gupta called Rajaratnam immediately after a
special telephonic meeting at which Goldman’s Board considered and
approved Berkshire’s investment in Goldman Sachs and the public equity
offering. Within a minute after the Gupta-Rajaratnam call and just minutes
before the close of the markets, Rajaratnam arranged for Galleon funds to
purchase more than 175,000 Goldman shares. Rajaratnam later informed
another participant in the scheme that he received the tip on which he
traded only minutes before the market close. Rajaratnam caused the
Galleon funds to liquidate their Goldman holdings the following day after the
information became public, making illicit profits of more than $900,000.
http://www.sec.gov/news/press/2011/2011-53.htm[28-12-2011 20:07:09]

2. Board Member of Goldman Sachs and Procter & Gamble Charged in Insider Trading Scheme
The SEC’s Division of Enforcement alleges that Gupta also illegally disclosed
to Rajaratnam inside information about Goldman Sachs’s positive financial
results for the second quarter of 2008. Goldman Sachs CEO Lloyd Blankfein
called Gupta and various other Goldman outside directors on June 10, when
the company’s financial performance was significantly better than analysts’
consensus estimates. Blankfein knew the earnings numbers and discussed
them with Gupta during the call. Between that night and the following
morning, there was a flurry of calls between Gupta and Rajaratnam. Shortly
after the last of these calls and within minutes after the markets opened on
June 11, Rajaratnam caused certain Galleon funds to purchase more than
5,500 out-of-the-money Goldman call options and more than 350,000
Goldman shares. Rajaratnam liquidated these positions on or around June
17, when Goldman made its quarterly earnings announcement. These
transactions generated illicit profits of more than $13.6 million for the
Galleon funds.
The Division of Enforcement further alleges that Gupta tipped Rajaratnam
with confidential information that he learned during a board posting call
about Goldman’s impending negative financial results for the fourth quarter
of 2008. The call ended after the close of the market on October 23, with
senior executives informing the board of the company’s financial situation.
Mere seconds after the board call, Gupta called Rajaratnam, who then
arranged for certain Galleon funds to begin selling their Goldman holdings
shortly after the financial markets opened the following day until the funds
finished selling off their holdings, which had consisted of more than 120,000
shares. In discussing trading and market information that day with another
participant in the insider trading scheme, Rajaratnam explained that while
Wall Street expected Goldman Sachs to earn $2.50 per share, he had heard
the prior day from a Goldman Sachs board member that the company was
actually going to lose $2 per share. As a result of Rajaratnam’s trades
based on the inside information that Gupta provided, the Galleon funds
avoided losses of more than $3 million.
Gupta served as a Goldman board member from November 2006 to May
2010, and has been serving on Procter & Gamble's board since 2007.
As it pertains to insider trades by the Galleon funds in the securities of
Procter & Gamble, the Division of Enforcement alleges that Gupta illegally
disclosed to Rajaratnam inside information about the company financial
results for the quarter ending December 2008. Gupta participated in a
telephonic meeting of P&G’s Audit Committee at 9 a.m. on Jan. 29, 2009, to
discuss the planned release of P&G’s quarterly earnings the next day. A
draft of the earnings release, which had been mailed to Gupta and the
other committee members two days before the meeting, indicated that
P&G’s expected organic sales would be less than previously publicly
predicted. Gupta called Rajaratnam in the early afternoon on January 29,
and Rajaratnam shortly afterward advised another participant in the insider
trading conspiracy that he had learned from a contact on P&G’s board that
the company’s organic sales growth would be lower than expected. Galleon
funds then sold short approximately 180,000 P&G shares, making illicit
profits of more than $570,000.
The Division of Enforcement alleges that by engaging in the misconduct
described in the SEC’s order, Gupta willfully violated Section 17(a) of the
Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5
thereunder. The administrative proceedings will determine what relief, if
any, is in the public interest against Gupta, including disgorgement of ill-
gotten gains, prejudgment interest, financial penalties, an officer or director
bar, and other remedial relief.
Sanjay Wadhwa, Jason Friedman and John Henderson – members of the
http://www.sec.gov/news/press/2011/2011-53.htm[28-12-2011 20:07:09]

3. Board Member of Goldman Sachs and Procter & Gamble Charged in Insider Trading Scheme
SEC’s Market Abuse Unit in New York – together with Diego Brucculeri and
James D’Avino of the New York Regional Office conducted the agency’s
investigation, which is continuing. The SEC’s litigation effort will be led by
Kevin McGrath and Valerie Szczepanik of the New York Regional Office.
# # #
For more information about this enforcement action, contact:
Robert Khuzami
Director, SEC Division of Enforcement
(202) 551-4894
George S. Canellos
Director, SEC’s New York Regional Office
(212) 336-1020
David Rosenfeld
Associate Director, SEC’s New York Regional Office
(212) 336-0153
Sanjay Wadhwa
Deputy Chief, Market Abuse Unit, SEC Division of Enforcement
(212) 336-0181
http://www.sec.gov/news/press/2011/2011-53.htm
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