Tip of the iceberg

Three Indian Americans, Rajat Gupta, Anil Kumar and Rajiv Goel have been charged in the biggest insider trading case in the US. NRI TODAY brings the latest as the drama unfolds in Manhattan courtrooms….

Rajat Gupta, former Goldman Sachs director, Anil Kumar, a former McKinsey & Co. partner and Rajiv Goel, an executive at Intel, have been charged for tipping Galleon group’s Raj Rajaratnam with insider information worth billions in the biggest hedge fund cases in the US history. FBI’s taped conversations between the four are being played in the Manhattan courts and the witnesses questioned to bring out the whole story.

Gupta has sued the Securities and Exchange Commission (SEC), accusing it of “unfairly and unconstitutionally” connecting him to the case. He has been accused of giving inside information about Goldman Sachs to his friend and business partner Raj Rajaratnam.

Sri Lankan born Rajaratnam, former head of the Galleon hedge funds, is on trial on 14 counts of insider trading. He has denied any wrongdoing. The SEC has accused Gupta of tipping Rajaratnam on Goldman earnings and the $5 billion Berkshire Hathaway investment, as well as other material, non-public information about the bank, which Rajaratnam then allegedly traded on.

In a suit filed in the same federal court where Rajaratnam is being tried, Gupta, 62, said the regulator should have filed a lawsuit instead. “Gupta denies all allegations of wrongdoing and stands ready to mount a defence against each and every one of the commission’s charges,” his lawyer, Gary Naftalis, said in the complaint.

Gupta seeks a jury trial and to have the SEC barred from asking for civil penalties. He is also seeking a court order keeping the agency from pursuing its administrative claims.

Under SEC rules, Gupta isn’t allowed a jury trial in an administrative action, or the right to use federal court rules on discovery, which require the exchange of evidence with the government, Naftalis said. The suit argues that the SEC proceeding will deny Gupta a number of legal protections he would have in federal court, including a trial by jury.

Goldman Sachs CEO Lloyd Blankfein testified that Gupta had confidential information including details of the $5 billion investment in Goldman in October 2008 by Berkshire. Gupta has resigned from various boards. Meanwhile, Anil Kumar, star prosecution witness, has testified that he was rarely consulted by Rajaratnam and Gupta about the launch of a private equity fund investing in South Asia.

Taking the stand again, Kumar, a former McKinsey & Co. partner, denied a suggestion by Rajaratnam's lawyer that he was being paid for legitimate consulting work, including a role in the launch of New Silk Route. Kumar testified that he and Gupta, a former colleague of Kumar's at McKinsey, created a company called Mindspirit LLC in 2001 as a vehicle for their two families to make investments, not as a consulting company, as suggested by Dowd.

Dowd asked Kumar about his role in a $50 million investment that New Silk Route made with an Indian company to build telecommunications towers.

New Silk Route dropped a potential deal with Bharati Telecom, which was controlled by a friend of Kumar, and instead did the deal with Reliance Telecom Ltd., "the archenemy of Bharati," Kumar testified. "It was an embarrassment for me," Kumar told the court.

When Dowd accused Kumar of "making up" facts in the courtroom and of trying to get "something for nothing" from the New Silk Route fund, in which he said he invested $1 million, Kumar replied: "I was not worth $2 billion like Rajaratnam."

Suggesting that Rajaratnam paid Kumar more than $1 million for legitimate work at the Galleon Group, Dowd showed the jury a Galleon investor presentation that named Kumar as an adviser to the fund. Dowd also contended that Kumar was paid money by Rajaratnam for his involvement with another fund, Taj Capital, which was started by Rajaratnam and a group of investors that included Gupta.

"You were paid $1 million because of work you did for Galleon and Taj Capital," Dowd said. Dowd presented records that showed the largest payment from Galleon for $1 million to Kumar was described as "consulting" in the hedge fund's books.

Kumar retorted: "I don't think they could have written that they paid for insider information in the records."

Kumar said he received no money for his time spent working on the Taj Capital fund, because the team had agreed he would be compensated only if he left McKinsey and joined the firm.

A former Intel executive, P. Alexander Lenke, also testified about how he gave inside information to Rajiv Goel, another former Indian American executive at Intel who has pleaded guilty to leaking earnings information about the chip maker to Rajaratnam.

However, testifying in the biggest insider trading trial in the US in a Manhattan court, Goel argued with defence lawyer Terence Lynam over a deal between Sprint and Clearwire, in which Intel, where Goel was employed at the time, made a $1 billion investment.

The prosecution alleges that Rajaratnam traded on tips provided by Goel, who has pleaded guilty in the case and is a key prosecution witness. But Lynam argued that Rajaratnam was a sophisticated, accomplished investor, and Goel's tips were barely worth his time-he didn't take any of it into account.

Asked about the specific details of what he revealed to Rajaratnam about Intel's quarterly earnings in 2007, Goel said: "I didn't recall exactly what I said to him, but it was about earnings information I'd gotten from Lenke."

P. Alexander Lenke, another former Intel executive has also testified about how he gave inside information to Goel. "You can't remember if the information was bad or good information?" Lynam asked.

"Yes sir, I don't remember specifics of numbers, I just passed on information that I got sir," Goel replied Lynam argued that if anything, given the information on Intel's revenue for the quarter in question, Rajaratnam should have sold or shorted Intel stock.

He also argued that after earnings news was released by Intel on April 18, the stock price moved about 1.5 percent and therefore the information "didn't significantly affect the stock price." "You don't know how that information was perceived or analyzed or processed," Lynam said to Goel of the information he says he provided to his then-friend.

When he pointed to news articles and analyst reports that discussed a potential deal by Sprint and Clearwire, and Intel's potential investment, Goel stressed that those reports were merely speculation.

Lynam also pointed out another phone call in which Goel called Rajaratnam about a prior conversation the pair had about Sprint and Clearwire's joint venture-the Wimax deal-to tell the Galleon chief that his "approach" to the valuation "is wrong."

"You wanted to call your old friend from Wharton and prove you were smarter than he was, right?" Lynam said.
"He's a lot smarter than I am," Goel said. "Even today." Asked by the prosecution if he told the FBI that he knew that Rajaratnam was going to trade on the information given, Goel said: "I knew." Meanwhile, prosecutors alleged that in the hours after the 2009 arrest of Rajaratnam, his brother Rengan participated in an alleged coverup by removing notebooks with handwritten notes about stocks from Raj Rajaratnam's office.

[ BY HEMA FERNANDO ]