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Jul 17, 2013

Ex-Goldman Sachs director ordered to pay $13.9 mn for insider trading

Gupta accused by SEC of passing confidential information to hedge fund manager Rajaratnam

A US court has ordered Rajat Gupta, the former Goldman Sachs director convicted of illegally giving confidential corporate information to hedge fund manager Raj Rajaratnam, to pay a fine of $13.9 mn, according to the SEC.

The sentence against Gupta, who was also permanently banned from holding any position as an officer or director of a public company, follows the record $92.8 mn penalty levied against Rajaratnam, the billionaire hedge fund manager, in November 2011 for insider trading. He was also sentenced to 11 years in prison.

‘The sanctions imposed today send a clear message to board members who are entrusted with protecting the confidences of the companies they serve,’ says George Canellos, co-director of the SEC’s division of enforcement, in a note on the commission’s website. ’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.’

In the case brought to the US District Court for the Southern District of New York, the SEC alleged Gupta gave Rajaratnam confidential information related to a $5 bn investment by Warren Buffet’s Berkshire Hathaway in Goldman Sachs, as well as confidential details about Goldman Sachs’ financial results for the third and fourth quarters of 2009.

In a case the SEC said was separate but parallel, Gupta was also found guilty last year of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was sentenced to two years in prison and a year of supervised release, and was fined $5 mn.

Besides serving as a director at Goldman Sachs, Gupta had been a member of the boards of American Airlines and Procter & Gamble, and a managing partner at McKinsey & Co. The case brought against him was part of a series of SEC actions against alleged insider trading in the hedge fund industry.

Rajaratnam was charged in October 2009. ‘He and several others including his New York-based hedge fund advisory firm Galleon Management engaged in a massive insider trading scheme,’ the SEC said. The regulator added two more related cases over the next few months and alleged that gains from the Rajaratnam/Gupta insider trading case totaled more than $52 mn.

In parallel cases, 27 individuals and entities were charged with insider trading in at least 15 publicly traded companies.