The SEC have expanded their insider trading case against Rajat Gupta, “charging him with passing tips to convicted hedge fund manager Raj Rajaratnam much earlier than alleged before,” reports the Times of India. “In a superseding indictment filed Tuesday in federal court in Manhattan, prosecutors broadened their description of the insider-trading scheme, saying it began in March 2007 not in 2008 as alleged in October.”
Rajat Gupta had originally been charged with one count of conspiracy to commit securities fraud and five counts of securities fraud, all related to tips on Goldman Sachs and Folgers Coffee in 2008 that he allegedly gave Raj Rajaratnam, the galleon Group founder convicted of insider trading and sentenced to 11 years. That was back in October. The charges stemmed from the Raj Rajaratnam case, but the two very different issues. Most notably, wiretaps played a key role in Rajaratnam own conviction, but they may not be admissible in court against Gupta, which will be a key point that could tip the balance of the case.” Further, Gupta is accused of providing insider trading tips to Rajaratnam – not of actually committing the insider trading himself. So, even if prosecutors were permitted to use the wire taps, they would still have to prove two vital things – that Gupta expected Rajaratnam to profit from the information and that he received some benefit by doing so. Simply telling someone confidential information is not a violation of the securities laws unless the government can prove it was done as part of a quid pro quo arrangement. Gupta’s trial is scheduled to start April 9.
Prosecutors have now added charges that Gupta tipped Rajaratnam about Goldman Sachs’s earnings in the first quarter 2007. They also allege that Gupta listened to a board meeting at Goldman Sachs in which earnings were disclosed, while at Galleon’s offices. “During that call, the audit committee discussed the company’s quarterly earnings announcement that would be made the following day,” said assistant US attorneys Reed Brodsky and Richard Tarlowe. “Gupta participated in the audit committee call from the premises of Galleon.” Prosecutors allege that Gupta provided this information to Rajaratnam ”because of Gupta’s friendship and business relationships with Rajaratnam,” arguing that “Gupta benefited from Rajaratnam’s capital commitment to, and position as a limited partner of, the private equity fund.” Gupta’s lawyer, Gary Naftalis, called the charges “totally baseless.”
“The newly added charges-like the ones brought last year-are not based on any direct evidence, but rely on supposed circumstantial evidence,” Naftalis said.
“The facts in this case demonstrate that Gupta is innocent of all of these charges, and that he has always acted with honesty and integrity.”