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The Breakdown: Gupta Gets Galleon Group Guap

By: Brandon

Rajat K. Gupta

Real G’s move in silence… we already know how that goes. But Bloomberg reports, Rajat K. Gupta, a former board member of the Goldman Sachs Group Inc., is being sued by U.S. regulators for passing on inside information to Galleon Group founder Raj Rajaratnam. In other words, Gupta leaked valuable company information to one business partner which led to $18 million in profits for the Galleon Group and others. Inside information is details about a company known by owners, partners, directors etc., which has not been released to the public. This information can include anything from company’s earnings for the passing quarter, to the CEO’s new coke habit. Such information in the right hands can be used by investors to reap enormous future profits, or can help them avoid losing all they invested.

The problem with inside information is it provides and unfair advantage in a market that is driven by news and speculation. Trading based off inside information is illegal; however, if this information is passed on and no action is taken, there has been no violation. You might remember hearing about a similar case in 2003, when Martha Stewart was convicted and sentenced to 5 months in jail for insider trading. In each case, the information was used and therefore warrants punitive action.

Gupta is said to have leaked the info about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs Group Inc. , and some quarterly earnings to Rajaratnam prior to the public. These deals drove the stock price up making the involved players a nice profit.

Gupta denies the whole thing of course. Claiming the charges are baseless and that he lost his $10 million investment on the very same deals. The SEC, who regulates the markets, says it will proceed with administrative proceedings to determine if Gupta will face any fines or other legal penalties. If convicted, Gupta may have to repay up to 3 times the profits.

So how should you feel about this? Another Wall Street scandal means more reform for the finance world and better protection of our money. The money supply in circulation is finite, and in the race to stack as much as we can, we must ALL play fair.