Goldman Director in Probe

[Cees Binkhorst]

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Prosecutors Examine Trades by Galleon in Bank's Shares as Investigation
Widens
http://online.wsj.com/article/SB10001424052702303348504575184261856306400.html
By SUSAN PULLIAM

Wall Street's most powerful firm is being drawn into the government's
sprawling insider-trading investigation.

Prosecutors are examining whether a Goldman Sachs Group Inc. board
member gave inside information about the Wall Street firm to Galleon
hedge-fund founder Raj Rajaratnam during the height of the financial
crisis, people close to the situation told The Wall Street Journal.
[GALLEON]

Goldman's name emerged in a government letter listing companies whose
trading, by Mr. Rajaratnam and others in the Galleon case, the U.S. is
investigating. The March 22 letter said the government is scrutinizing
trades by Mr. Rajaratnam and others in Goldman Sachs from June 2008
through October 2008, a time when Goldman shares gyrated amid the
bankruptcy of Lehman Brothers Holdings and concerns about the future of
all major investment banks.

As part of that focus, the government is examining whether Rajat Gupta—a
current Goldman director, former head of McKinsey & Co. and close
associate of Mr. Rajaratnam's—shared inside information about Goldman,
the people close to the situation say.

No criminal charges or other allegations have been filed against Mr.
Gupta, nor is there any indication that investigators are looking at his
own stock trading. A spokesman for Mr. Gupta said, "Mr. Gupta is unaware
of any examination of any such issue and has done nothing wrong."

Mr. Rajaratnam, who has pleaded not guilty to criminal insider-trading
charges, declined to comment through his spokesman.

Though Goldman is just one of a number of stocks newly emerging in the
investigation, the big banking firm stands out because it executed
trades for Galleon over the years, and Messrs. Gupta and Rajaratnam were
in a separate business partnership several years ago.
WSJ Professional

     * Governments Go After Insider Trading
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It isn't clear what specific evidence the government may have gathered
related to trading in the shares of Goldman or other companies listed in
the March 22 court filing, which was a response to a request by Mr.
Rajaratnam's lawyers for more information about the government's
evidence. The letter identified 22 companies, some not previously made
public, in which the U.S. attorney in Manhattan is scrutinizing trading
by Mr. Rajaratnam and other alleged co-conspirators.

The letter from prosecutors said, "We fully anticipate that the
Government's ongoing investigation and review of information will lead
to further evidence relating to the charged crimes, including
identification of additional uncharged co-conspirators." The letter
described the trading the government was investigating in various stocks
as "almost all...clearly disclosed in the wiretap applications,
intercepted calls, and consensually recorded calls."

Defense lawyers in the Galleon case have argued that wiretaps shouldn't
be admitted as evidence.

The development marks a turning point in the Galleon matter, which has
so far focused on the role of hedge funds, technology executives and
traders in the alleged insider-trading scheme. The focus on Mr. Gupta
marks the first time the probe has involved a major Wall Street firm.

Goldman's shares swung from roughly $180 in June 2008 to below $100 in
October of that year. Amid that tumultuous period, in September 2008,
Warren Buffett's Berkshire Hathaway Inc. invested $5 billion in Goldman,
shoring up confidence in the firm's prospects. The stock has since
rallied to $184.92.

View Full Image
Galleon
Bloomberg News

Raj Rajaratnam, founder of Galleon, arrives at federal court in New York
for a court conference on Feb. 17.
Galleon
Galleon

Many of Galleon Group's dozen or so hedge funds traded Goldman stock
almost every day, with some buying while others were selling, an
individual familiar with the matter said.

Galleon's rapid-fire trading has stymied investigators in the past. In
2007, the SEC was investigating whether there was insider trading at
Galleon. Amid active in-and-out trading by Galleon, the SEC was unable
to immediately bring charges.

In the criminal complaint against Mr. Rajaratnam, prosecutors say he
told another defendant to trade in and out of a stock to cover their
footsteps.

Beginning last October, the U.S. charged 21 people in the Galleon
matter, 11 of whom have pleaded guilty.

Mr. Rajaratnam and former fund manager Danielle Chiesi, who are at the
center of the case, maintain their innocence and have said they will
fight the charges. The case is scheduled for trial in federal court in
New York in October.

Goldman and Galleon have had ties for some time. Galleon conducted
trading business with Goldman. Mr. Rajaratnam was acquainted with
Goldman executives in addition to Mr. Gupta, people close to the
situation say.

Goldman's activities separately are under scrutiny in a Securities and
Exchange Commission civil investigation of whether there was insider
trading in some health-care transactions.

SEC investigators are looking at whether there were leaks about
health-care mergers in the past three years, including roughly a dozen
involving bankers and others at Goldman since 2006, people close to the
situation say.

The SEC sent about three-dozen subpoenas to hedge funds and brokerage
firms last year. Goldman declined to comment on the matter, as did an
SEC spokesman.

Mr. Gupta, 61 years old, was born in India. He joined McKinsey in 1973
and rose to head the consulting firm from 1994 to 2003. He stayed as a
partner until 2007.

Mr. Gupta sits on the boards of Procter & Gamble Co. and AMR Corp. in
addition to Goldman, and he has served as special adviser on management
reform to the United Nations secretary-general.

There is no suggestion that trading in other companies where he is a
director is under scrutiny.

Messrs. Rajaratnam and Gupta spoke frequently, and Mr. Gupta was invited
to attend parties hosted by Galleon, an individual close to the
situation says.

In 2006, Mr. Rajaratnam, Mr. Gupta and Mark Schwartz, a former Goldman
executive, formed Taj Capital, a hedge-fund and private-equity firm
focused on South Asia. The firm, since renamed New Silk Route, manages
$1.4 billion in private-equity investments. Mr. Gupta is now its
chairman. Mr. Rajaratnam has severed ties with the firm, according to a
person close to the situation. Mr. Schwartz didn't immediately respond
to a request for comment.

Mr. Gupta is the second former McKinsey employee whose name has emerged
in the Galleon matter. Anil Kumar, a former consultant at McKinsey,
pleaded guilty to insider-trading charges in January, telling a federal
judge that he received more than $2 million in exchange for inside
information about an acquisition by Advanced Micro Devices Inc. Mr.
Rajaratnam has denied the allegation.

McKinsey declined to comment.

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