Former Goldman Sachs Director Ordered To Pay $13.9 Million Penalty To Settle SEC Suit

Former Goldman Sachs Director Ordered To Pay $13.9 Million Penalty To Settle SEC Suit

By Timothy Raub

NEW YORK — (Mealey’s) A federal judge in New York on July 17 ordered a former Goldman Sachs Group Inc. director to pay a $13.9 million penalty to settle claims with the Securities and Exchange Commission that he provided inside information to a former hedge fund manager as part of an insider trading scheme (Securities and Exchange Commission v. Rajat K. Gupta and Raj Rajaratnam, No. 11-7566, S.D. N.Y.). 

(Memorandum order available.  Document #88-130722-039R.)

 

U.S. Judge Jed S. Rakoff of the Southern District of New York ordered former Goldman Sachs and Proctor & Gamble Co. director Rajat K. Gupta to pay $13,924,665 in penalties for providing inside information to former hedge fund manager Raj Rajaratnam regarding Warren Buffet’s $5 billion cash infusion into Goldman Sachs, as well as further inside information that Goldman Sachs was expected to report third-quarter losses, even though many analysts had predicted a profit, in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. 

Judge Rakoff also enjoined Gupta from further violations of federal securities laws and permanently barred Gupta from serving as an officer or director of a public company or associating with any brokers, dealers or investment advisers. 

$1.4 Million Penalty 

The ruling comes on the heels of a Dec. 27 final judgment by Judge Rakoff, ordering Rajaratnam to pay more than $1.4 million for his role in the insider trading scheme. 

The SEC sued Gupta and Rajaratnam in the District Court on Oct. 26, 2011.  It sought permanent injunctions enjoining the defendants from engaging in the acts alleged in the complaint; disgorgement, jointly and severally, of unlawful profits or losses avoided; and civil penalties.  The agency also sought an order barring Gupta from acting as an officer or director of any issuer that has a class of registered securities and an order enjoining Gupta from associating with any broker, dealer or investment adviser. 

In a parallel criminal action, Rajaratnam was convicted of 14 counts of conspiracy and securities fraud on May 11, 2011.  He was sentenced to 11 years in prison and ordered to pay forfeiture of nearly $54 million and a $10 million fine on Oct. 13, 2011. 

Gupta was also convicted of one count of conspiracy to commit securities fraud and three counts of securities fraud on June 15, 2012, after two days of jury deliberations.  He was sentenced to two years in prison and one year of supervised release and ordered to pay a $5 million fine.  Gupta is appealing his conviction. 

Counsel 

The SEC is represented by George S. Canellos, David Rosenfeld, Sanjay Wadhwa, Valerie Szczepanik, Kevin McGrath and John Henderson of the SEC in New York. 

Gupta is represented by Alan R. Friedman, David S. Frankel, Gary P. Naftalis, Michael S. Oberman and Robin M. Wilcox of Kramer Levin Naftalis & Frankel in New York. 

Rajaratnam is represented by Terence J. Lyman and William E. White of Akin Gump Strauss Hauer & Feld in Washington. 

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