Ex-Goldman board member indicted in insider case
A former board member of Goldman Sachs and Proctor & Gamble became the most prominent business executive arrested in the biggest insider trading case in history when a securities fraud indictment was unsealed against him Wednesday.
The indictment accuses Rajat Gupta of cheating the markets with Raj Rajaratnam, the convicted hedge fund founder who was the probe's prime target.
Gupta, 62, of Westport, Conn., quietly surrendered early Wednesday at the FBI's New York City office, located a few blocks north of the ongoing Occupy Wall Street demonstration against corporate greed. His lawyer called the allegations "totally baseless."
He was awaiting an arraignment on one count of conspiracy to commit securities fraud and five counts of securities fraud. The charges carry a potential penalty of 105 years in prison.
The indictment unsealed in U.S. District Court in Manhattan alleges Gupta shared confidential information about both Goldman Sachs and Procter & Gamble at the height of the financial crisis from 2008 through January 2009, knowing that Rajaratnam would use the secrets to buy and sell stock ahead of public announcements.
In a release, U.S. Attorney Preet Bharara said Gupta broke the trust of some of the nation's top public companies and "became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam, who reaped enormous profits from Mr. Gupta's breach of duty."
Alluding to the wide scope of the prosecution, he added: "Today we allege that the corruption we have seen in the trading cubicles, investment firms, law firms, expert consulting firms, medical labs, and corporate suites also insinuated itself into the boardrooms of elite companies."
FBI Assistant Director-in-Charge Janice Fedarcyk said the arrest was the latest to occur in an initiative launched by the FBI in 2007 against hedge fund cheats.
"The conduct alleged is not an inadvertent slip of the tongue by Mr. Gupta," she said. "His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of 39 seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
Gupta's lawyer, Gary P. Naftalis, said in a statement Wednesday that his client only had legitimate communications with Rajaratnam.
"The government's allegations are totally baseless," he said. "The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity. ... We are confident that these accusations - which are based entirely on circumstantial evidence - cannot withstand scrutiny and that Mr. Gupta will be completely exonerated of any wrongdoing."
Aside from being a former director of the Wall Street powerhouse Goldman Sachs, Gupta is the former chief of McKinsey & Co., a highly regarded global consulting firm that zealously guards its reputation for discretion and integrity.
Gupta was also a former director of the huge consumer products company Procter & Gamble Co., a pillar of American industry and one of the 30 companies that make up the Dow Jones industrial average. P&G owns many well-known brands including Bounty, Tide, and Pringles.
The Indian-born defendant's name played prominently at the criminal trial earlier this year of Rajaratnam, who was convicted after prosecutors used a trove of wiretaps on which he could be heard coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades.
Jurors heard testimony that at an Oct. 23, 2008, Goldman board meeting, members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999.
Prosecutors produced phone records showing Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning and save millions of dollars.
Rajaratnam also earned close to $ 1 million when Gupta told him that Goldman had received an offer from Warren Buffett's Berkshire Hathaway to invest $ 5 billion in the banking giant, prosecutors said.
In one tape played at trial, Rajaratnam could be heard grilling Gupta about whether the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.
"Have you heard anything along that line?" Rajaratnam asked Gupta.
"Yeah," Gupta responded. "This was a big discussion at the board meeting."
Prosecutors sought to maximize the impact of the Gupta tape by calling Goldman Sachs chairman Lloyd Blankfein to testify that the phone call violated the investment bank's confidentiality policies.
The Securities and Exchange Commission also brought civil insider trading charges against Gupta Wednesday.
Rajaratnam was sentenced earlier this month to 11 years in prison.
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Former Goldman Sachs Group Inc. director Rajat Gupta was indicted for conspiracy and securities fraud, making him the highest-ranking executive charged in a nationwide crackdown on insider trading centered on Raj Rajaratnam, co-founder of hedge fund Galleon Group LLC.
Gupta, who also sat on the board of Procter & Gamble Co. and led McKinsey & Co., was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud in an indictment unsealed yesterday in Manhattan federal court. The U.S. Securities and Exchange Commission also sued Gupta, 62, yesterday.
"From 2008 through January 2009, Gupta disclosed to Raj Rajaratnam material, nonpublic information that Gupta had learned in his capacity as a member of the boards of directors of Goldman Sachs and P&G with the understanding that Rajaratnam would use the inside information to purchase and sell securities," according to the indictment.
Gupta, who surrendered to the FBI in Manhattan at about 8 a.m. yesterday, pleaded not guilty before U.S. District Judge Jed Rakoff. He appeared in court wearing a salmon Hermes necktie, blue shirt and navy blue suit. He was ordered released on $ 10 million bond secured by his Westport, Connecticut, home. His travel is restricted to the continental U.S. and he must surrender his passport. Rakoff set an April 9 trial date.
After his arraignment, Gupta declined to comment on the charges.
The Federal Bureau of Investigation and prosecutors in the office of Manhattan U.S. Attorney Preet Bharara have spent four years probing illegal trading at hedge funds, technology companies, banks and consulting firms.
Rajaratnam was sentenced this month to 11 years in prison, the longest term for insider trading in U.S. history. Gupta faces as long as 20 years in prison if convicted on each of the securities fraud charges and as long as five years if convicted of conspiracy.
"The government's allegations are totally baseless," Gary Naftalis, a lawyer for Gupta, said in an e-mailed statement. "The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity."
Naftalis said there were "legitimate reasons" for his client to communicate with Rajaratnam, including a $ 10 million investment Gupta had with a fund Rajaratnam managed.
"He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo," Naftalis said. The lawyer declined to comment after the arraignment.
Stephen Cohen , a spokesman for New York-based Goldman Sachs, declined to comment.
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Global Hunter's Teevan Sues Ex-Employer Cantor Fitzgerald
Marty Teevan, head of trading at Global Hunter Securities LLC, sued his former employer, Cantor Fitzgerald LP, in a contract dispute.
Teevan, who left Cantor in September 2010, filed a sealed complaint in Delaware Chancery Court in Wilmington Oct. 25. He accused the New York-based brokerage firm of a breach of contract, according to documents submitted with the complaint.
Lawyers for Teevan asked the court to seal the complaint because it includes Cantor's partnership agreement, which includes a confidentiality obligation, according to court records.
Teevan, who was hired by Ticonderoga Securities LLC in March, joined Global Hunter in September with three other Ticonderoga bankers. Ticonderoga had shut down its fixed-income business in August, six months after starting the unit, as trading volumes shrank.
Cantor doesn't comment on litigation, spokesman Robert Hubbell said in a telephone interview.
The case is Teevan v. Cantor Fitzgerald LP, CA6976, Delaware Chancery Court (Wilmington.)
RightNow Shareholder Sues Over $ 1.5 Billion Oracle Purchase
A RightNow Technologies Inc. shareholder sued over the software maker's plan to sell itself to Oracle Corp. for $ 1.5 billion, calling the deal "fundamentally unfair."
The proposed transaction stems from a flawed process that lacked an open auction and includes deal protections that favor Oracle, shareholder Sanjay Israni said in the complaint filed Oct. 25 in Delaware Chancery Court.
"Neither RightNow's management, nor its board, has fully explained why the company, or its current management, needs to abandon their deliberately conceived internal growth strategies for a short-term profit," Israni said in the complaint.
Under the proposed deal announced this week, RightNow shareholders will get $ 43 a share, or 20 percent more than Bozeman, Montana-based RightNow's closing price on Oct. 21.
The acquisition will help Oracle, based in Redwood City, California, add software that helps companies serve customers using call centers, the Internet and social networks.
Israni seeks to represent all RightNow shareholders in his request for a court order barring the transaction.
Jaia Zimmerman, a RightNow spokeswoman, didn't return a phone call and e-mail seeking comment on the complaint.
The case is Israni v. RightNow Technologies Inc., CA6977, Delaware Chancery Court (Wilmington)
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Lawsuits/Pretrial
New York Working With Delaware on Criminal Foreclosure Probe
New York Attorney General Eric Schneiderman is working with his Delaware counterpart, Beau Biden, to investigate what he called possible "criminal acts" by financial institutions tied to the foreclosure crisis.
"This was a man-made crisis -- it was created by regulatory neglect and greed," Schneiderman said last night in a TV interview.
"Beau Biden, who is the attorney general of Delaware, and I thought we really needed to dig in a little bit deeper," Schneiderman told MSNBC's Rachel Maddow. "We're also looking at the conduct of individual institutions and individuals to see if there were misrepresentations made, to see if there was any fraud committed, to see if criminal acts were also a part of this."
Schneiderman has been investigating mortgage practices of banks as state and federal officials negotiate a settlement with lenders over foreclosure and mortgage-servicing conduct.
All 50 state attorneys general last year announced they were investigating bank foreclosure after disclosures that faulty documents were being used to seize homes. Negotiations with banks including Bank of America Corp. and JPMorgan Chase & Co. haven't produced a settlement more than a year since the investigation began.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, and Kristin Lemkau, a spokeswoman for New York-based JPMorgan, declined to comment on Schneiderman's remarks. Joe Rogalsky, a spokesman for Biden, declined to comment immediately.
Schneiderman and Biden have said any settlement with the banks shouldn't provide liability releases to the companies for matters that haven't been fully investigated, including the packaging of loans into securities.
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Trials
Altria, Reynolds American Begin Trial of 600 Smoking Claims
A West Virginia jury began hearing a case intended to resolve more than 600 smoking-related personal-injury cases against the biggest U.S. cigarette makers, including Altria Group Inc.'s Philip Morris unit and R.J. Reynolds Tobacco Co.
The jurors in state court in Wheeling heard the start of opening statements in a two-phase trial. In the first phase, which began yesterday, the jury is being asked to determine general liability questions and the availability of punitive damages.
"This case is about the corporations' responsibility," Kenneth McClain, a lawyer for the smokers, said in court. "They were actively keeping from the public the information that they had."
The case, which was originally consolidated for trial purposes in 2000, was moved to Wheeling from Charleston, West Virginia, after Circuit Judge Arthur Recht was unable to find enough jurors qualified to hear the case there.
The jurors will be asked to determine questions related to the companies' liability, including whether they marketed a defective product. If jurors find for the plaintiffs, they will also determine whether any of the defendants engaged in conduct that can support an award of punitive damages.
The companies have claimed the two-phase plan is unworkable and violates their right to a fair trial. West Virginia's Supreme Court, ruling on a question certified for appeal by Recht, found in 2005 that the bifurcated trial plan doesn't violate the Due Process Clause of the U.S. Constitution's 14th Amendment, clearing the way for the claims to go forward.
Recht told jurors they will be asked to determine whether cigarettes are defective products, whether the companies failed to warn about the dangers of smoking, broke express warranties and fraudulently concealed information from smokers.
Jurors will also be asked to decide whether the cigarette makers "acted in a willful, wanton and reckless manner," permitting the award of punitive damages.
The case is In Re Tobacco Litigation (Individual Personal Injury Cases), 00-C-5000, West Virginia Circuit Court, Ohio County (Wheeling).
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Deutsche Bank's Kirch Meeting Not Unusual, Jentzsch Says
A 2002 meeting of Kirch Group creditor banks called by Deutsche Bank AG wasn't unusual and didn't yield any results, said Stefan Jentzsch, then chief risk officer at HVB Group.
The banks met to discuss how to handle 800 million euros ($ 1.1 billion) in funds Kirch was presumed to need through the end of that year, Jentzsch said during testimony at a Munich appeals court yesterday. The meeting took place on Feb. 14, 2002, and also discussed whether to restructure Leo Kirch's firm to tackle the liquidity crisis, the banker said, undermining a claim there was a conspiracy to bring down Kirch Group.
"If you ask what to do with a group's liquidity crisis, you also ask what to do with a group's holdings," Jentzsch said. "If you massively sell units, the liquidity situation changes."
The meeting was scheduled 10 days after former Deutsche Bank Chief Executive Officer Rolf Breuer said on Bloomberg TV "everything that you can read and hear" is that "the financial sector isn't prepared to provide further" loans or equity to Kirch. Within months, the media group filed for bankruptcy. Kirch sued Deutsche Bank and Breuer seeking about 3.3 billion euros in suits claiming the bank plotted his company's demise.
Deutsche Bank and Breuer have long denied the allegations in the lawsuits, which continued after Kirch's July death, and said Bayerische Landesbank asked Deutsche Bank to call the meeting.
The suits claim Deutsche Bank invited the so-called pool banks including HVB, Commerzbank AG, BayernLB and DZ Bank AG, to the meeting to talk them into breaking up the media firm. The move blocked refinancing efforts, according to the lawsuits. Kirch had his own meeting with pool banks scheduled the same day.
The case is OLG Muenchen, 5 U 2472/09.
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Verdicts/Settlements
AB InBev Wins Back 'Bud' Name in Austria After Court Decision
Anheuser-Busch InBev NV won back the rights to use the name "Bud" on beer in Austria after a local court lifted an injunction that had given Budejovicky Budvar NP the sole entitlement to the name in the country.
A Viennese commercial court in a decision signed Oct. 19 decided to lift the injunction that prevented Anheuser-Busch from selling beer under the name American Bud in Austria since 1999. Austria's Supreme Court already ruled against Budvar in August.
"Not only do these positive rulings set a favorable precedent, they also open up the Austrian market to AB InBev's use of the Bud trademark in Austria," Leuven, Belgium-based AB InBev said in an e-mailed statement.
The case is part of a century-old dispute between Budvar and AB InBev, the world's largest brewer. The clash over the Austrian rights made it twice to the EU court. The protections at issue, so-called geographical indications, have been the subject of trademark cases around the world involving French champagnes, Italian cheeses and other products.
The Austrian rulings follow a 2009 decision by the European Union's highest court that clarified the conditions under which Budvar's right in the country could be maintained.
Petr Samec, a spokesman for Budvar, didn't respond to an e- mail seeking comment.
Budvar claims it owns the rights to "Bud" because its beer comes from Ceske Budejovice, or Budweis in German. The brewer argued that Bud has been a national geographical indication since 1975 in the Czech Republic and this protection was extended by a bilateral agreement to Austria in 1976.
Ex-Terra President Gets 15 Years Prison for Teleco Bribes
Terra Telecommunications Corp.'s former president, Joel Esquenazi, was sentenced to 15 years in prison for his role in a scheme to bribe officials at state-owned telecommunications company Haiti Teleco.
The sentence issued Oct. 25 is the longest in a case involving the Foreign Corrupt Practices Act, the U.S. Justice Department said in a statement. The former executive vice president of Miami-based Terra, Carlos Rodriguez, 55, of Davie, Florida, was sentenced to seven years in prison, according to the statement. Esquenazi and Rodriguez were also ordered to forfeit $ 3.09 million, the Justice Department said.
Esquenazi, 52, of Miami, and Rodriguez laundered money and authorized bribes from November 2001 through March 2005 to successive directors of international relations at Haiti Teleco, the sole provider of land-line telephone service in Haiti, according to the statement.
The bribes were used to obtain advantages from Haitian officials for Terra, including preferred telecommunications rates, reductions in minutes for which payments were owed, and the continuance of Terra's telecommunications connection with Haiti, according to the statement.
Michael Rosen, a lawyer representing Esquenazi, didn't return a call after regular business hours Oct. 25 seeking comments about the sentencing.
Rodriguez's lawyer, Arturo Hernandez, said in a phone interview he is "gratified" that Rodriquez wasn't immediately sent to prison, giving him a chance to file a motion for a bond while his conviction is appealed.
Hernandez said the government's case suffered from "scant" evidence. The appeal will be based in part on an argument that Haiti's former Prime Minister Jean-Max Bellerive issued a statement defining Haiti Teleco as a private company, and as such, not subject to the prohibitions of the Foreign Corrupt Practices Act, Hernandez said.
The case is U.S. v. Esquenazi, 09-21010, U.S. District Court, Southern District of Florida (Miami).
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