Former hedge fund manager Raj Rajaratnam is to pay USD1.47 million to settle insider trading charges brought against him by the Securities and Exchange Commission (SEC).
The SEC’s complaint, filed on 26 October, 2011, alleges that, among other things, Rajat K Gupta tipped his business associate Rajaratnam – Galleon Management’s founder and managing general partner – to confidential information Gupta learned in the course of his duties as a member of the Board of Directors of The Goldman Sachs Group, Inc. The complaint alleges that Gupta disclosed material non-public information concerning Berkshire Hathaway Inc’s USD5 billion investment in Goldman Sachs in September 2008, and concerning Goldman Sachs’s financial results for both the second and the fourth quarter of 2008.
Rajaratnam used the information he learned from Gupta to trade profitably in certain Galleon hedge funds. By engaging in this conduct, Gupta and Rajaratnam violated Section 10(b) of the Securities Exchange Act of 1934, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933.
On 15 June, 2012, in a parallel criminal case arising out of the same facts, Gupta was convicted of one count of conspiracy to commit securities fraud and three counts of securities fraud. On 24 October, 2012, Gupta was sentenced to two years in prison and one year of supervised release, and ordered to pay a USD5 million criminal fine.
The final judgment in the SEC’s case orders Rajaratnam to disgorge his share of the profits gained and losses avoided as a result of the insider trading plus prejudgment interest on that amount. The SEC’s claims against Gupta remain pending.