Understanding Insider Trading: The Case of Rajat K. Gupta and Raj Rajaratnam
The story delves into the scandal of insider trading involving Rajat K. Gupta and Raj Rajaratnam. Gupta, a prominent figure at Goldman Sachs, allegedly leaked confidential information to Rajaratnam, who made substantial profits through illegal trading activities. This case not only tarnished Gupta's reputation but also raised questions about ethical standards in the financial industry.
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Rajat K. Gupta, Insider Trading MAX ANDREWS
Background Born in Kolkata, India Father died when he was age 16 Mother died at age 18 Attended Modern School in New Delhi Ranked 15thin the nation in the entrance exam for IIT Obtained his Bachelors degree in mechanical engineering from Indian Institute of technology, Delhi in 1971 Received an MBA from Harvard Business School in 1973
Insider Trading The illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information. Insider trading is illegal because it s a form of securities fraud, and fraud is viewed as larceny or theft Insider trading is not a victimless crime. All stakeholders are effected.
Goldman Sachs and McKinsey & Company Goldman Sachs McKinsey & Company Multinational investment banking firm. Global management consulting firm. Provide investment banking, securities, investment management and financial services. Solves issues regarding concerns to senior management. Serves as an adviser to major businesses, government and institutions worldwide. Also provides merger, acquisition and asset management advice. Provides companies with advise that can be considered very important information. Executives are exposed to very sensitive information
Raj Rajaratnam Sri Lankan-American former hedge fund manager and founder of Galleon Group. Rajat Gupta allegedly told Raj Rajaratnam about a five billion dollar purchase by Warren Buffet s Berkshire Hathaway of Goldman preferred stock. Raj Rajaratnam conspired to obtain the information through Rajat Gupta before it went public. Raj Rajaratnam was reported to have wanted to cooperate with law enforcement by wearing a wire to tape insider information discussions with Gupta. All the evidence against Rajat Gupta was circumstantial.
How is this Insider Trading? The Goldman Sachs director was claimed to have been the leader in leaking out the bank s boardroom secrets to Raj Rakaratnam. Gupta was the most prominent corporate executive in this case which led to 79 convictions and not a single loss. Raj Rajaratnam reportedly made approximately $60 million dollars on insider information. This leaves a permanent scar on Raj K. Gupta s reputation and also hurts Goldman Sach s credibility as an investment bank.
How to avoid insider trading Watch what kinds of questions you ask when receiving information on securities. Always check your sources. Report to the proper authorities when you receive information relevant to your portfolio that you re not sure is public. If you are hearing information you shouldn t be hearing, report it because you could be charged with conspiracy. Make sure you only trade with people who are clear on insider trading policies. Watch how you repay favors.
Citations "What Is Insider Trading and How to Avoid It Definition, Laws & Cases." Money Crashers. SparkCharge Media, 1 Jan. 2014. Web. 28 Apr. 2014. <http://www.moneycrashers.com/what-is-insider-trading- definition-laws-cases/>. Protess, Ben. "Federal Court Rejects Gupta s Appeal for New Trial." New York Times. N.p., 25 Mar. 2014. Web. 28 Apr. 2014. <http://dealbook.nytimes.com/2014/03/25/court-rejects-rajat- guptas-appeal/>.
