The Raj Rajaratnam/Galleon Group, Anil Kumar, and Rajat Gupta inside trading cases are parallel and related civil and criminal actions by the U.S. Securities and Exchange Commission and the United States Department of Justice against three friends and business partners: Galleon Group hedge fund founder-owner Raj Rajaratnam and former McKinsey & Company senior executives Anil Kumar and Rajat Gupta.
The charges stemmed from an investigation by the United States Attorney's Office (USAO) into allegations that Rajaratnam conspired in insider trading of stock for several large companies.
Rajaratnam was found guilty on all 14 charges and sentenced to 11 years in prison for profiting from tips he received from Robert Moffat, Anil Kumar, Rajiv Goel, and Roomy Khan.
[4] Kumar maintained a low profile outside McKinsey until an October 2009 arrest in conjunction with an ongoing and wide-ranging US governmental investigation into insider trading.
[5] Former mentor Rajat Gupta was later arrested by the FBI in a related case,[6] prompting inquiries into McKinsey's senior leadership and business model.
[11][12] In the sprawling case his involvement was unusual; according to a Reuters blog, “He’s the only informant who could be considered even more successful than Raj was, at least professionally if not in terms of raw cash.
'Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors and receive their confidential information so that he could give advice and counsel,' said Manhattan U.S. Attorney Preet Bharara, whose office is prosecuting the case.
U.S. Attorney Preet Bharara put the total profits in the scheme at over $60 million, telling a news conference it was the largest hedge fund insider trading case in United States history.
[25] It said he also conspired to get confidential information on the $5 billion purchase by Warren Buffett’s Berkshire Hathaway of Goldman Sachs preferred stock before the September 2008 announcement of that transaction.
The Wall Street Journal reported in April that a former member of the board of directors of Goldman Sachs and former McKinsey & Company chief executive Rajat Gupta told Rajaratnam about Berkshire's investment before it became public.
[29] Coverage of the event noted that Anil Kumar — who, like Gupta, had graduated from IIT, was a longtime highly regarded senior partner at McKinsey, and had also co-founded the ISB — had already pleaded guilty to charges in the same case.
It is alleged that he illegally tipped Rajaratnam with insider information about Goldman Sachs and Procter & Gamble while serving on the boards of both companies.
Among other aspects, the May, 2011, Bloomberg report noted that, "[r]emarkably, none of Gupta's alleged criminal tips to Rajaratnam appear to have been captured on the FBI's wiretaps."
The court filing read, "Mr. Gupta denies all allegations of wrongdoing and stands ready to mount a defense against each and every one of the Commission's charges.
As part of the August agreement, the SEC agreed to file any future charges against Gupta in federal court in New York where they would be assigned to Rakoff.
"[58] In late September, 2011, The Wall Street Journal reported that federal prosecutors were "fully committed" to filing criminal charges and were "moving closer toward bringing" them.
'Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel,' said Manhattan U.S. Attorney Preet Bharara, whose office is prosecuting the case.
"[17] Former Federal prosecutor Douglas Burns, who in March had said he expected an SEC-Gupta consent agreement,[62] also previewed a Gupta no-quid pro quo defense plan on Bloomberg the day of the arrest.
The date represents a six-week delay granted the defense after the prosecution broadened the indictment, adding a new charge based on a March 12, 2007, conference call and also regarding Goldman information.
They also said that his "investments with Rajaratnam -- $10 million and an ownership stake in at least two funds -- gave him the motive to engage in insider trading", according to one news report.
[69] Also in April, CNBC reported that the U.S. Attorney's office in Los Angeles was investigating an unnamed current Goldman employee for providing inside information about Apple and Intel to Rajaratnam.
[71] Also in early May, the prosecution made a motion to play in trial three FBI wiretaps of two Rajaratnam "conversations with his principal trader and another with Galleon's then portfolio manager" related to the Goldman Sachs information.
[72] As well, details of wiretap recordings and trading activity related to the charges were analyzed at length in the media, assessing the strengths and weaknesses of the prosecution's and defense's cases.
[76] "[W]orld-renowned speaker Deepak Chopra and Mukesh Ambani, the ninth-richest man in the world [and] ... chairman of Reliance Industries", were among supporters of Gupta's registered on a friendsofrajat.com website prior to the trial.
[78] Rajat Gupta and Anil Kumar were senior partners together at McKinsey & Company for over a decade, among the earliest and best-regarded Indian-Americans in management consulting.
"[79] According to The Financial Times, "the two operated as a forceful double-act to secure business for McKinsey, win access in Washington and build a brotherhood of donors around the Hyderabad-based ISB and a handful of social initiatives.
[84] While they were both senior partners, Gupta and Kumar "created a company called Mindspirit LLC in 2001 as a vehicle for their two families to make investments.
[86] Former President Bill Clinton was also an investor in the Infogroup transaction; his daughter Chelsea previously worked under Gupta and Kumar at McKinsey.
During the dot-com bubble of the late 1990s, Gupta and Kumar had created a program to allow McKinsey to accept stock in lieu of consulting fees.
[96] With the conviction of Gupta, the US attorney in Manhattan Bharara's office had the case of Anthony Chiasson, a co-founder of the once-prominent hedge fund Level Global Investors, still ahead of it.