Based on recorded phone conversations, the key accused Rajaratnam of Galleon funds seems to be nearly caught. Though the court is yet to pass its verdict, the phone conversations - which Rajaratnam's lawyers fought hard against having admissible in court proceedings - have now finally been admitted. Here are some interesting pieces of conversation from the WSJ. I don't know if the actual conversations will enter public domain anytime under US laws, but that would be very interesting - their very own Radia to ponder over.
This will also have serious implications for Rajat Gupta the superstar, former head of McKinsey who is also ensnared in civil/administrative proceedings for passing on favourable news in Goldman Sachs and Procter and Gamble. Many Indians have naively jumped to his defense, ignoring the fact that the SEC would not attack someone of such stature without some very solid evidence. While the SEC and the courts will either take action or settle the case against Rajat Gupta, it is very premature to defend him. The Indian School of Business (ISB) too seems to have prematurely defended him "The ISB community is confident that Rajat Gupta will be vindicated. He continues to be the Chairman of the ISB Executive Board."
Interestingly, Rajat Gupta who chairs the Indian School of Business board has not resigned from its Board or its chair and sent a letter to ISB which seems to be written by cunning lawyers. Here is part of the letter:
"Dear Board Members, I wanted to let you know that the SEC intends to commence civil and administrative proceedings against me arising out of the Galleon Group hedge fund matter...I am informed by my lawyers that the case is based on speculation and unreliable third hand hearsay. Just to be clear: there are no tapes or any other direct evidence of me tipping Mr. Rajaratnam. I did not trade any of the securities involved, nor did I share in any of Mr. Rajaratnam's profits. In fact, during the period in question, the business relationship between Mr Rajaratnam and I were strained."
Comment 1: Why do lawyers have to inform him about the speculative and unreliable evidence. Surely Mr. Gupta knows the evidence, either inside information tips did occur or didn't.
Comment 2: 'There are no tapes...' Isn't that an indirect way of admitting that he committed fraud but there isn't direct evidence. Why couldn't he say 'I haven't tipped any information ever to Mr. R'?
Comment 3: There is no requirement to 'trade in securities' to be caught for the fraud of insider trading, nor is it necessary to share in Rajaratnam's profits. Any kind of benefit monetary or non-monetary would be enough. Obviously, there wouldn't be direct cheque payments from Rajaratnam/Galleon to Rajat Gupta.
Comment 4: If his relationship with Rajaratnam were strained how come he was making these phone calls to him minutes from important board meetings? I would hardly call a person I dislike, particularly so just after a busy board meeting.
I think the ISB board should act quickly and ask him to take leave from the Board; they can always take him back once he obtains an acquital. Doing otherwise would be to permanantly damange the institution which has been doing great work. ISB has taken sufficient hits to its reputation with several of its Board members getting into trouble in the past including Ramalinga Raju (former board member, confessed in Satyam, now reconsidering), Ram Mohan Rao (fomer dean, disgraced in Satyam episode) and Anil Kumar (former board member, confessed). The institution shouldn't suffer for no fault of its own.
PS: Here is a para from the US SEC's complaint which is quite damning:
"A Special Telephonic Meeting of the Goldman Sachs Board was convened at 3:15 p.m. on September 23, during which the Board considered and approved a $5 billion preferred stock investment by Berkshire in Goldman Sachs and a public equity offering. As Gupta knew, Berkshire was one of the most respected and influential investors and its decision to make such a large investment in Goldman Sachs would likely be viewed as a strong vote of confidence in the firm when the information was disclosed to the public. The infusion of a large amount of new capital in the firm also would likely be viewed favorably by investors. Gupta participated in the Board meeting telephonically, staying connected to the call until approximately 3:53 p.m. Immediately after disconnecting from the Board call, Gupta called Rajaratnam from the same line. Within a minute after this telephone conversation, at 3:56 p.m. and 3:57 p.m., and just minutes before the close of the markets, Rajaratnam caused the Galleon Tech funds to purchase more than 175,000 additional Goldman Sachs shares. Rajaratnam later informed a conspirator that he received the information upon which he placed the trades minutes before the close."
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