More Bad News for Rajaratnam, Goldman
When it rains, it pours. Just weeks after prosecutors told Galleon Group founder Rajaratnam’s defense team that it was now looking into Galleon’s trading of Goldman shares in 2008, it was announced that they are now also looking into the possibility that Rajat Gupta, a longtime friend and associate of Rajaratnam’s and Goldman Sachs current Director, may have leaked information to Rajaratnam related to a $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway. Not good news for Rajaratnam or Gupta. Not exactly great news for Goldman either.
The revelation marks a significant development in the government’s case against Raj Rajaratnam, the man who stands accused of the largest insider-trading case we’ve seen in years. Buffett’s investment in Goldman in 2008 was a crucial moment in the financial crisis, helping allay fears about the financial instability of the economy by investing $5 billion in the country’s biggest investment bank at a time when confidence was wavering.
According to the Wall Street Journal,
The Buffett investment buoyed Goldman’s shares. In the days leading up to the deal, the firm’s stock had slid more than 40%—to $86 intraday on Sept. 18. By the time the deal was announced, on Sept. 23, its shares surged 45% to $125. On Thursday, Goldman’s shares were up 12 cents.
The investment, preferred shares in Goldman paying a 10% dividend, has been lucrative for Mr. Buffett: Berkshire has reaped profits totaling $750 million.
Savvy.
Gupta hasn’t been charged in the case, and denies any wrongdoing. And Rajaratnam, for his part, is still denying any impropriety. Of course he is.
According to court documents cited in the Wall Street Journal, prosecutors said some of the inside information Rajartnam obtained from Gupta included non-public information about the Berkshire investment in Goldman in September 2008, as well as information about Goldman earnings obtained before their public release between June and September 2008, when the market was pretty much going to shit. Gupta wasn’t mentioned in the filing. The Journal also adds that prosecutors have wiretapped conversations, which are at the heart of the case against Rajaratnam, in which the two men discuss the non-public data regarding Berkshire’s cash injection.
A little background on the Gupta/Rajaratnam connection: Back in 2006, Gupta, Rajaratnam, and former Goldman exec Mark Schwartz founded a South Asia alternative investments firm called Taj Capital. Since then, Rajaratnam has left the firm, which is now called New Silk Route, managing $1.4 billion in private equity funds. Gupta, however, remains its chairman. Despite no longer being in business together, according to the Wall Street Journal, Gupta and Rajaratnam are apparently still besties: they “met frequently” at Galleon’s midtown Manhattan offices and Gupta was apparently regularly “invited to attend parties hosted by Galleon.”
Gupta plans to remain Director of Goldman until his term ends next month, then step down. Since he began his stint as Director in 2006, he has received a total of $1.7 million in compensation. Gupta also sits on the board of AMR Corp. and Procter & Gamble Co. and previously headed McKinsey from 1994 until 2003.
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