SEC sues Genpact chairman for alleged insider trading – The Royal Gazette | Bermuda News, Business, Sports, Events, & Community

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SEC sues Genpact chairman for alleged insider trading

The chairman of a Bermuda international company is being sued for alleged insider trading by US federal investigators.

The US Securities and Exchange Commission (SEC) announced the civil charges yesterday against Rajat Gupta, the chairman of Bermuda-domiciled Genpact Ltd.

The SEC said Mr Gupta told Raj Rajaratnam, founder of the Galleon Group hedge fund, that Warren Buffett's Berkshire Hathaway planned to invest $5 billion in Goldman before it was publicly announced at the height of the financial crisis.

Federal regulators have charged the former Goldman Sachs board member with insider trading, saying he gave confidential information to the key figure in what prosecutors call the largest hedge fund insider-trading probe in history.

Genpact is the product of a spin-off from General Electric and was incorporated on the Island in March 2007.

It is a business process management and technology company, which helps businesses streamline their operations. Genpact, which had a market capitalisation of nearly $3 billion, employs 43,900 people all over the world.

The company has no physical presence in Bermuda. Its registered office shares the address and phone number of the law firm Appleby, based at 22 Victoria Street.

The SEC alleges that while a member of Goldman Sachs' board of directors, Mr Gupta tipped Mr Rajaratnam about Berkshire Hathaway's $5 billion investment in Goldman and Goldman's upcoming public equity offering before that information was publicly announced on September 23, 2008.

The SEC alleges: “Gupta called Rajaratnam immediately after a special telephonic meeting at which Goldman's board considered and approved Berkshire's investment in Goldman Sachs and the public equity offering.”

The meeting ended at 3.53pm, seven minutes before the close of the market, and Mr Gupta called Mr Rajaratnam at that time, the SEC claims. Within a minute of that call ending, Mr Rajaratnam arranged for Galleon to buy 175,000 Goldman shares.

“Rajaratnam later informed another participant in the scheme that he received the tip on which he traded only minutes before the market close,” the SEC statement reads. “Rajaratnam caused the Galleon funds to liquidate their Goldman holdings the following day after the information became public, making illicit profits of more than $900,000.”

Prosecutors have claimed that Mr Rajaratnam generated profits of more than $50 million after getting inside information about public companies' earnings and plans for mergers and acquisitions. The information on Goldman made Mr Rajaratnam's funds $17 million richer, the SEC said. The P&G data created illegal profits of more than $570,000 for Galleon funds managed by others, the SEC said.

“Mr Gupta was honoured with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” SEC enforcement director Robert Khuzami said. “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”

Mr Gupta's attorney, Gary Naftalis, called the allegations “totally baseless”, the Boston Herald reported. Naftalis noted that the SEC isn't accusing Mr Gupta of trading in the stocks of the companies himself or sharing profits with Mr Rajaratnam on the trades. Mr Gupta actually lost his $10 million investment in a hedge fund managed by Mr Rajaratnam at the time he allegedly passed on the information, Naftalis said.

Mr Gupta also is charged with giving Mr Rajaratnam confidential earnings information from Goldman and Procter & Gamble. Mr Gupta served on Goldman's board from 2006 until last May. He was a P&G board member from 2007 until resigning yesterday, after the charges were announced.

Mr Gupta was an investor in some of the Galleon hedge funds when he passed the information along, and he had other business interests with Mr Rajaratnam, the SEC said. Mr Rajaratnam used the information from Mr Gupta to illegally profit in hedge fund trades, the SEC said.

As well as being Genpact chairman, 62-year-old Mr Gupta, of Westport, Connecticut, is also a board member of AMR Corp, the parent company of American Airlines and Harman International Industries Inc, a US consumer electronics company.

Mr Rajaratnam, a one-time billionaire who is free on $100 million bail, has pleaded not guilty to criminal securities fraud charges. He has maintained that he traded only on information that was already public. He is scheduled to go on trial next week in a probe that has resulted in criminal charges against more than 25 people. Of those, 19 have pleaded guilty to charges, with the majority of them cooperating.

Facing insider trading civil charge: Genpact chairman Rajat Gupta

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Published March 02, 2011 at 9:20 am (Updated March 02, 2011 at 9:19 am)

SEC sues Genpact chairman for alleged insider trading

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