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SEC Files Insider Trading Charges Against Rajat Gupta, Brings New Charges Against Raj Rajaratnam

On October 26, 2011, the Securities and Exchange Commission charged former McKinsey & Co. global head Rajat K. Gupta with insider trading for illegally tipping convicted hedge fund manager Raj Rajaratnam while serving on the boards of Goldman Sachs and Procter & Gamble (P&G). The SEC also filed new insider trading charges against Rajaratnam after first charging him with insider trading in October 2009.

According to the SEC’s complaint filed in federal court in Manhattan, Gupta illegally tipped Rajaratnam with insider information about the quarterly earnings of both Goldman Sachs and P&G as well as an impending $5 billion investment in Goldman by Berkshire Hathaway at the height of the financial crisis. Rajaratnam, the founder of Galleon Management who was recently convicted of multiple counts of insider trading in other securities stemming from unrelated insider trading schemes, allegedly caused various Galleon funds to trade based on Gupta’s inside information, generating illicit profits or loss avoidance of more than $23 million.

The SEC’s complaint alleges that Gupta provided his friend and business associate Rajaratnam with confidential information learned during board calls and in other communications and meetings relating to his official duties as a director of Goldman and P&G. Rajaratnam used the inside information to trade on behalf of certain Galleon funds, or shared the information with others at his firm who caused other Galleon funds to trade on it ahead of public announcements by the firms. During this period, Gupta had a variety of business dealings with Rajaratnam and stood to benefit from his relationship with him.