Legal News

Galleon Investigation Touches Goldman Sachs

By Ashby Jones

Just how far will the Galleon Group insider-trading investigation go?

That’s the question we’re asking Thursday after reading the front-page news that prosecutors are looking at whether a Goldman Sachs board member passed along inside information about the firm to Galleon hedge-fund founder Raj Rajaratnam during the height of the financial crisis. Click here for the WSJ story, by Susan Pulliam; here for all previous LB coverage on the Galleon case.

According to Pulliam’s story, Goldman’s name emerged in a March 22 government letter listing companies whose trading activity prosecutors are looking at. The letter said the government is scrutinizing trades by Rajaratnam and others in Goldman Sachs from June 2008 through October 2008, a time when Goldman shares gyrated during the Wall Street meltdown.

As part of that focus, the government is examining whether Rajat Gupta-a current Goldman director, former head of McKinsey and close associate of Rajaratnam’s-shared inside information about Goldman, the people close to the situation say.

No criminal charges or other allegations have been filed against Gupta, nor is there any indication that investigators are looking at his own stock trading. A spokesman for Gupta said, “Mr. Gupta is unaware of any examination of any such issue and has done nothing wrong.”

Rajaratnam, who has pleaded not guilty to criminal insider-trading charges, declined to comment through his spokesman.

Though Goldman is just one of a number of stocks newly emerging in the investigation, the big banking firm stands out because it executed trades for Galleon over the years, and Gupta and Rajaratnam were in a separate business partnership several years ago.

The development marks a turning point in the Galleon matter, which has so far focused on the role of hedge funds, technology executives and traders in the alleged insider-trading scheme. The focus on Mr. Gupta marks the first time the probe has involved a major Wall Street firm.

Gupta, 61 years old, was born in India. He joined McKinsey in 1973 and rose to head the consulting firm from 1994 to 2003. He stayed as a partner until 2007. He sits on the boards of Procter & Gamble Co. and AMR Corp. in addition to Goldman, and he has served as special adviser on management reform to the United Nations secretary-general.

There is no suggestion that trading in other companies where he is a director is under scrutiny.

Full post as published by Law Blog - WSJ.com on April 15, 2010 (boomark / email).