Raj Rajaratnam Faces New Insider Trading Charges

Raj Rajaratnam is in hot water again. The SEC filed new charges against him on Wednesday “after first charging him with insider trading in October 2009,” reports FuturesMag. The new charges stem from the charges levied against Rajat Gupta.

Raj Rajaratnam thinking

New Charges Against Raj Rajaratnam

Raj Rajaratnam is charged “with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933.” The SEC is seeking a final judgment that would permanently enjoin him from further violations. It is also asking that Rajaratnam pay financial penalties in addition to ceding any profit earned from the violations. The SEC claims that Rajaratnam profited from insider trading tips provided him by Rajat Gupta. In the press release issued by the SEC, these alleged events include Rajaratnam earning more than $570,000 for his Galleon Group fund by short selling P&G shares after Gupta tipped him that organic sales would be lower than expected, Rajaratnam avoiding losses of $3.6 million from its position in Goldman Sachs and generating more than $18.5 million off its Goldman Sachs positions in a series of out-of-the-money call options and shares, and $800,000 from investing in Goldman immediately prior to the announcement that Warren Buffett had invested $5 billion in the company.

Rajat Gupta Charged

Rajat Gupta is being charged with tipping Raj Rajaratnam with information that allowed him to make these transactions in such a timely fashion. Gupta, in addition to being charged “with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933,” the SEC also “seeks to permanently prohibit Gupta from acting as an officer or director of any registered public company, and to permanently enjoin him from associating with any broker, dealer or investment adviser. From the information listed in the press release, Gupta is not accused of profiting from the alleged insider tips.

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