In the next phase of a Wall Street scandal that has been described as the largest case of insider trading in history, former Goldman Sachs director Rajat Gupta may play a big part.
Wednesday, Gupta pleaded not guilty to charges of leaking insider information to friend and Wharton 1983 MBA recipient Raj Rajaratnam, the Galleon Group co-founder who was sentenced to 11 years in prison for insider trading Oct. 13. Gupta has previously served on the board of governors for the Wharton School’s Lauder Institute, as well as the advisory board for the Kairos Society which started in Wharton.
Gupta has been charged with one count of conspiracy to commit securities fraud and five counts of securities fraud and faces up to 20 years in prison.
Preet Bharara, the United States attorney for Manhattan, said in a statement that Gupta “became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam,”
In another statement, Gupta’s lawyer Gary Naftalis countered that characterization. “The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity,” Naftalis said.
Gupta could receive a “lot of jail time” if convicted, believes William Brennan, a Philadelphia attorney unaffiliated with the case. “The sentence will be driven by the amount of money involved,” he added.
Gupta was named in a March 22, 2010, government letter filed in a New York federal court as part of the Rajaratnam case. Gupta and Rajaratnam were good friends who met through philanthropic activities, according to The New York Times. Together they started New Silk Route, a private equity firm. Gupta also allegedly invested in Rajaratnam’s hedge fund firm, Galleon Group.
“Oftentimes the motives [of insider trading] are to alert family and friends to a tip, resulting in an unfair advantage over the general public,” Brennan said.
Prosecutors believe Gupta leaked tips to Rajaratnam on Goldman Sachs and Proctor & Gamble Co. while Gupta was director at those firms.
In a conversation recorded in 2008 played at Rajaratnam’s trial, Rajaratnam confided to a colleague that Goldman’s stock prices might take a hit after the company reports a quarterly loss. In another recording from 2008, Gupta told Rajaratnam that Goldman was considering purchasing either Wachovia or American International Group.
Brennan stated that these kinds of fraud cases are not common. However, because of the recent economic downturn, the federal government has been cracking down on corporate investors. Since late 2009, 55 individuals have been charged with insider trading and all but four of them have either been convicted or pleaded guilty, according to The Wall Street Journal.
Gupta previously successfully fought the SEC’s decision to try him before an administrative judge, saying it was unconstitutional to deny him a jury trial, which was granted to the other Rajaratnam-related defendants.
Bail was set at $10 million, and Gupta was forced to surrender his passport. He will be facing trial at the U.S. District Court of the Southern District of New York this April.
The Daily Pennsylvanian is an independent, student-run newspaper. Please consider making a donation to support the coverage that shapes the University. Your generosity ensures a future of strong journalism at Penn.
DonatePlease note All comments are eligible for publication in The Daily Pennsylvanian.