WASHINGTON — The former head of McKinsey & Co. provided improper tips to Galleon Group founder Raj Rajaratnam about companies in which he was a board member, including a $5 billion investment in Goldman Sachs Group by Warren Buffett’s Berkshire Hathaway, according to a Securities and Exchange Commission (SEC) proceeding filed Tuesday.
Rajat K. Gupta, who headed McKinsey from 1994 to 2000, was charged with insider trading in a civil administrative proceeding filed by the SEC’s Division of Enforcement on Tuesday. He left the consulting firm in 2007.
Gupta, who voluntarily stepped down from Procter & Gamble’s board on Tuesday and is a former director at Goldman, allegedly provided Rajaratnam with tips about the results for both companies, in addition to the Berkshire investment in 2008. Rajaratnam is slated to go to trial next week in a closely watched insider-trading case.
Gary Naftalis, a lawyer for Gupta, said the SEC’s charges are “totally baseless.”
“Mr. Gupta’s 40-year record of ethical conduct, integrity and commitment to guarding his clients’ confidences is beyond reproach,” Naftalis said.
Gupta, a friend and business associate of Rajaratnam, allegedly spoke with Rajaratnam by phone after a special telephone conference call by Goldman’s board and tipped him to the Berkshire investment and Goldman’s public equity offering before it was announced in September 2008, according to the SEC. The Berkshire investment came at the height of the financial crisis, within days of Lehman Brothers Holdings seeking bankruptcy protection.
Within a minute after the call, Rajaratnam allegedly arranged for Galleon funds to purchase more than 175,000 Goldman shares, the SEC said. Rajaratnam had begun purchasing shares earlier in the day, following another call with Gupta, the SEC said. Rajaratnam caused the Galleon funds to liquidate their Goldman holdings the day after the information became public, making $900,000 in illicit profits, the SEC said. Gupta did not seek reelection to Goldman’s board last year.
Gupta, 62, of Westport, Conn., also allegedly provided Rajaratnam with details about Goldman Sachs’s positive financial results in second-quarter 2008 and its negative results in fourth-quarter 2008, the SEC said. Goldman reported a $2.1 billion loss in fourth-quarter 2008. Gupta allegedly called Rajaratnam within 23 seconds of a telephonic board meeting on Goldman’s fourth-quarter 2008 results, the SEC said.
Rajaratnam allegedly generated more than $13.6 million in illicit profits related to trading before Goldman’s second-quarter announcement and avoided more than $3 million in losses based on the tip regarding fourth-quarter results, the SEC said.
Rajaratnam is among 26 people charged in broad criminal insider-trading probe. Nineteen people have pleaded guilty in the probe.
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