NEW YORK (Reuters) - A former Goldman Sachs director leaked secret details to Galleon Group hedge fund manager Raj Rajaratnam about Warren Buffett’s plan to invest $5 billion (3 billion pounds) in the Wall Street bank at the height of the financial crisis, a U.S. securities regulator charged.
The U.S. Securities and Exchange Commission said the director, Rajat Gupta, tipped Rajaratnam by phone just minutes before the public learned of the investment by Buffett’s Berkshire Hathaway Inc (BRKa.N)(BRKb.N), which helped ensure Goldman’s stability.
Gupta, a former worldwide managing director at consulting firm McKinsey & Co, was also accused of tipping Rajaratnam about quarterly earnings at Goldman and Procter & Gamble Co (PG.N), where he was a director before resigning on Tuesday.
The 62-year-old Gupta is one of the highest-ranking corporate executives implicated in the government’s wide-ranging insider trading probe, which has resulted in criminal or civil charges against dozens of individuals.
Tuesday’s charges mark the first time that activity said to have occurred at Goldman was directly implicated in the probe.
The SEC said Rajaratnam, who faces a March 8 criminal insider trading trial, used the tips to trade at his firm, Galleon Group, reaping more than $18 million of illegal gains. It said Gupta invested in at least some Galleon hedge funds.
“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” SEC enforcement chief Robert Khuzami said in a statement. “Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”
The SEC began administrative and cease-and-desist proceedings against Gupta. It described Gupta as a “friend and business associate” of Rajaratnam.
“Based on the allegations in the order instituting the administrative proceedings, it appears the SEC has a powerful, circumstantial case against Gupta,” said Kathleen Hamm, managing director at Promontory Financial Group in Washington and a former SEC enforcement official.