Insider Trading in USA 2009

1. RAJAT GUPTA & RAJARATNAM INSIDER
TRADING IN USA 2009
Presented By:
Poorna Shivappa (PGD17037)
Rohit Prasad (PGD17040)
Kranthi Kumar Reddy
(PGD17035)

2. RAJ RAJARATNAM
• Started his career as lending officer at Chase Manhattan Bank.
• Joined investment banking boutique Needham & Co as analyst in
1985
• Started a hedge fund in March 1992- the Needham Emerging
Growth Partnership- later bought and renamed Galleon.
• He was arrested by the FBI on 16 October 2009.
Galleon Group:
• Founded by Raj Rajaratnam, a Srilankan American
• Was one of the largest hedge fund management firms in the world
managing over $7 billion.
• Centre of 2009 insider trading scandal and closed in October 2009.

3. RAJAT GUPTA
• Career Timeline:
 Joins New York office of McKinsey & Co.(1973)
 Became worldwide MD of McKinsey & Co.(1994)
 Co-founded Indian School of Business. (1997)
 Steps down from McKinsey. (2003)
 Starts serving as Director in Goldman Sachs. (2006)
 Begins serving as Director in Proctor & Gamble. (2007)
• In 2005, Gupta, Rajaratnam and Ravi Trehan, an investor via
BroadStreet Group and another friend of Gupta, co-
founded Voyager Capital, 80% owned by Rajaratnam and capitalized
at $50 million.

4. THE PLAYERS
• Raj Rajaratnam: the Sri-Lankan manager of the hedge fund Galleon
Group
• Rajat Gupta: former director at Goldman Sachs and head of
McKinsey consulting. Also served on the board of Procter &
Gamble.
• Warren Buffet: the CEO of Berkshire Hathaway, an investment
company.
• Preet Bharara: the United States Attorney for the Southern District
of New York.

5. CLAIMS
• In Sept 2008, Gupta disclosed to Rajaratnam material non
public information concerning Berkshire’s $5 billion
investment in Goldman Sachs.
• Gupta provided Rajaratnam material non-public information
of Goldman Sachs’s financial results for 2nd & 4th quarters of
2008- more than $23 million.

6. • Disclosed material non-public information of Procter &
Gamble’s financial results for 2nd quarter of 2008- profits
over $570000.
• Electronic records and wiretapped conversations exposed
numerous communications Raj Rajaratnam had with insiders
at companies.

7. Trading in Advance of Berkshire’s $5 billion in
Goldman Sachs
• 21 Sept 2008: Board approved Goldman Sachs becoming a Bank
Holding Company
• 22 Sept: Gupta placed call to Rajaratnam- purchased over 100000
Goldman Sachs shares
• 23 September:
• Rajaratnam placed call to Gupta- purchased additional 50000
shares
• Goldman Sachs Board approved $5 billion preferred stock
investment by Berkshire in Goldman Sachs and a public equity
offering.
• Rajaratnam purchased more than 217200 shares

8. • After market close on 23 Sept: Goldman Sachs publicly
announced Berkshire investment along with $2.5 billion public
stock offering
Stock prices:
23 Sept closing: $125.05 per share
24 Sept opening: $128.44 per share
24 Sept closing: $133 per share
Gain of 6.36% from prior day’s closing price
• 24 Sept 2008: Rajaratnam liquidated the long position in
Goldman Sachs, generating profits of over $800000.

9. Trading in Advance of Goldman Sachs’s 4th
Quarter 2008
• 23 October: P&L statements showed company was operating a
quarter to date loss of $1.96 per share.
• 24 October:
Rajaratnam sold holdings of 150000 shares- ranging from $97.74
to $102.17 per share
Galleon hedge funds avoided losses of more than $3.6million.
• 16 December: Goldman Sachs announced $1.2 billion loss

11. Trading in Advance of Goldman Sach’s 2nd
Quarter 2008
• 10 June 2008: CEO Blankfein discussed earnings numbers
(positive) with Gupta
• 11 June: Rajratnam purchased over 7350 Goldman Sachs
June $170 call option contracts (opening- $167 per share)
• 11 & 12 June: purchased additional 350000 shares selling
small portion on 13 June
• 16 June: Rajaratnam sold June $170 call option contracts (2%
runup) – approx $9.3 million profits

12. • 17 June 2008:
• Goldman Sachs’s share price opened at $185.04 per share
(1.62% higher)
• Rajaratnam sold shares purchased on 10th June.
• Profits of over $9 million
• Total illicit profits made were nearly $18.5 million.

13. Trading in Advance of Procter & Gamble’s 2nd
Quarter 2008
• 29 January 2009(morning):
• Pre-market quarterly earnings was released
• Company expected organic sales to grow 2-5% in the FY compared
to 4-6% growth previously
• 29 January(late afternoon):
• Galleon sold short approx 180000 P&G shares
• Stock price closed at $58.22 per share
• 30 January: Stock price opened at $56.50 per share and closed at
$54.50 per share (6.39% decline)
• Illicit profits of over $570000

14. • 16 October 2009- Raj Rajaratnam was arrested by FBI-
charged with conspiring with others to engage in insider
trading
• U.S Attorney Preet Bharara put total profits in the scheme at
over $60 million- largest hedge fund insider trading case
• Rajaratnam pleaded not guilty- $100 million bail- largest in
United States history
• December 2009- Indicted by grand jury
• May 2011- Found guilty in U.S District Court on 14 charges
• October 2011- ordered to pay a fine of $10 million, forfeit
$53 million, Sentenced to 11 years in prison
Aftereffects

15. • 24 October 2012- Rajat Gupta sentenced to 2 years in prison-
leaking boardroom secrets
• 25 March 2014- His conviction upheld by Federal Appeals
Court
• 11 June 2014- U.S Supreme Court reject his bail plea
• 17 June 2014- Prison sentence began

16. THANK YOU