RAJAT GUPTA AND
INSIDER TRADING
By Todd Shimamoto
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Overview
Significance
How it Played Out
Analysis
Deontological and Virtue Ethical
Theory/Recommendations
Sources
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Rajat Gupta, corporate director at Goldman
Sachs (and once at Mckinsey).
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Found guilty of 3 securities frauds and of
relaying confidential Goldman Sachs
boardroom information to hedge fund titan
Rajaratnam at Galleon Group.
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Caught via government-placed wiretaps
listening to Rajaratnam and Gupta discussing
Warren Buffett's Berkshire Hathaway Inc.’s $5
billion investment and Goldman Sachs’s first
quarterly loss.
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Rajaratnam bought Goldman Sachs shares for
profit.
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Found guilty of 3 securities frauds and of
relaying confidential Goldman Sachs
boardroom information to hedge fund titan
Rajaratnam at Galleon Group.
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Faced 20 years for fraud charges, 5 for
conspiracy charge, but went for 2.
Overview
Why Is This Case So
Significant?
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 Goldman Sachs is a leading investment banking and financial consulting firm.
 Ranked 68 by Fortune 500 in 2013.
 Other small sources constantly rate them high up.
 McKinsey and Co. is a leading senior management consulting firm.
 Ranked No. 1 under Vault’s consulting rankings for 2014
 Short answer, many big/small businesses rely on managers and employees at these
firms.
 Manager in question is has been on board of directors for both companies, as well as
The Bill and Melinda Gates Foundation, American Airlines, and Proctor and Gamble.
 Backdrop for the accused situation is the 2008 financial meltdown.
How it Occurred
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2 described court meetings in 2012 and 2014.
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Wiretaps reveal insider trading between Rajaratnam and Gupta.
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Gupta is convicted.
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11 of the 12 jury members believe he is guilty, until evidence
convinces the 12th.
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Took only 10 hours, compared to Rajaratnam’s case taking 12
days.
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Gupta was put up as “free on bail” for a second count.
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He planned to appeal.
How it Occurred Pt. 2
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Lawyers challenge conviction by mentioning a $10 million
fallout Gupta had with Rajaratnam.
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Lawyers also claim Rajaratnam never traded based on the
exchanged information.
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Prosecutors said Rajaratnam tipped Gupta off.
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Lawyers claim Gupta never benefitted or traded on any tip.
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Prosecutors pieced together phone calls and other exchanges
supported by testimonies that included Goldman Sachs CEO
Lloyd Blankfein.
How it Occurred Pt. 3
• Gupta wanted new trial in 2014, but court rejected it.
• Wiretaps are mentioned again, and lawyers say what Rajaratnam
says is “the self-serving hearsay of a known fabulist.”
• Prosecutors claim it is nonhearsay.
• Gupta was sentenced to 2 years, freedom pending appeal.
• Appeal is rejected.
Aftermath
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Defendants write about judge undercutting theory of Rajaratnam’s
insider being another Goldman Sachs employee (i.e. Goldman
Sachs Vice President David Loeb).
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Complain about judge cutting Gupta’s daughter’s testimony short
(“My dad was upset with Rajaratnam” when she wanted to say
“Rajaratnam stole money from my dad”).
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Court claims their shortening of the testimony may have been an
error, “but it was harmless.”
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Wiretaps.
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Judge receives letters from celebrity figures such as Bill Gates to let
him go, discussing the life he lived and his contributions.
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Type of Ethical Problem: Duty and character
Duty
Character-Based
Boardroom information is
meant to remain confidential
(unless company has a
specified reason for
disclosure).
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He was an advisor.
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If he was higher up, this
scandal could have cost
employees their jobs.
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Breaching of rules has
affected trust in Goldman
Sachs.
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Rajat is a face of the
company.
He was supposed friends with
Rajaratnam – may have done
this because of that if he was
truly at fault.
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He was an advisor who can
no longer fill his role.
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Deontological and Virtue
Ethics/Recommendations
 Business associations between people empathizing
with each other can be catastrophic.
 Consult the rest of your board before taking any
action.
 A person’s hardships are not to be considered against
their crime.
SOURCES
 Bray, C., Rothfeld, M., Albergotti, R., Steinberg, J., Chung, J., & Strumpf, D. (). Insider
Case Lands Big Catch Rajat Gupta, Ex-Goldman, P&G Director, Found Guilty; Initial
Holdout on Jury. the Wall Street Journal,
 Protess, B., & Raghavan, A. (2014, April 20). Federal Court Rejects Gupta's Appeal for
New Trial. DealBook Federal Court Rejects Guptas Appeal for New Trial Comments.
Retrieved from http://dealbook.nytimes.com/2014/03/25/court-rejects-rajat-guptasappeal/
 Former Goldman Sachs Director Rajat Gupta seeks re-hearing of insider trading
conviction. (2014, April 9). The Economic Times. Retrieved , from
http://articles.economictimes.indiatimes.com/2014-04-09/news/48999807_1_rajatgupta-geetanjali-gupta-gary-naftalis