The inside information was worth $17 million in illegal profits and loss avoidance, according to federal documents.
Mr. Rajaratnam has been at the center of a major federal investigation into insider trading among hedge fund managers. He was convicted in May of 14 counts of conspiracy and securities fraud. Two weeks ago he was sentenced to 11 years in prison. Rajaratnam was also ordered to forfeit $53.8 million and pay a $10 million fine.
Gupta was an investor and director in one of Galleon’s investment funds that had holdings in other Galleon hedge funds, including some funds that bought or sold stock based on Gupta’s alleged insider tips. His arrest is an outcome of the investigation into Galleon Group launched five years ago at the Securities and Exchange Commission.
According to federal documents, the alleged Gupta-Rajaratnam insider-trading scam involved timely phone calls placed by Gupta informing Rajaratnam of financial developments likely to affect the relevant company’s stock price.
For example, on Sept. 23, 2008, Gupta learned in a telephone meeting of the Goldman Sachs board that Berkshire Hathaway would make a $5 billion investment in the company. The news came at a time of substantial turmoil in the financial markets following the collapse of Lehman Brothers.
According to the indictment, 16 seconds after disconnecting from the board meeting, Gupta was on the phone with Rajaratnam’s office. The call went through at 3:54 p.m. – six minutes before the stock market would close for the day.
The indictment says Gupta disclosed inside information to the hedge fund manager concerning Berkshire Hathaway’s impending investment in Goldman Sachs.
Four minutes later at 3:58 p.m. – with only two minutes left in the trading day – Rajaratnam caused the purchase of 350,000 shares of Goldman Sachs stock, worth a total value of $43 million, the indictment says.
After the markets closed for the day, Goldman Sachs publicly announced the Berkshire investment.