The Securities and Exchange Commission has obtained a USD13.9m penalty against former Goldman Sachs board member Rajat K. Gupta for illegally tipping corporate secrets to former hedge fund manager Raj Rajaratnam.
Gupta is also permanently barred from serving as an officer or director of a public company.
The SEC previously obtained a record USD92.8m penalty against Rajaratnam for prior insider trading charges.
“The sanctions imposed today send a clear message to board members who are entrusted with protecting the confidences of the companies they serve,” says George S Canellos, co-director of the SEC’s division of enforcement. “If you abuse your position by sharing confidential company information with friends and business associates in exchange for private gain, you will be prosecuted to the fullest extent by the SEC.”
In its complaint filed in late 2011, the SEC alleged that Gupta disclosed confidential information to Rajaratnam about Berkshire Hathaway’s USD5bn investment in Goldman Sachs as well as non-public details about Goldman Sachs’s financial results for the second and fourth quarters of 2008.
In addition to imposing the civil penalty, the order issued by the Honourable Jed S Rakoff of the US District Court for the Southern District of New York enjoins Gupta from future violations of the securities laws, and permanently bars him from acting as an officer or director of a public company, and from associating with any broker, dealer, or investment adviser.
In a parallel criminal case arising out of the same facts, the SEC provided significant assistance to the US Attorney’s Office for the Southern District of New York in its successful criminal prosecution of Gupta, who was found guilty on 15 June 2012 of one count of conspiracy to commit securities fraud and three counts of securities fraud. Following the jury verdict, Gupta was sentenced on 24 October 2012 to a term of imprisonment of two years followed by one year of supervised release, and ordered to pay a USD5m criminal fine.
On 16 December 2012, the SEC obtained a final judgment ordering Rajaratnam to disgorge his share of the profits gained and losses avoided as a result of the insider trading based on Gupta’s tips, plus prejudgment interest.