Insider trading: Shaikh’s former associate in trouble

Rajat Gupta’s woes add up after a billionaire hedge fund manager is convicted.

KARACHI:

Rajat Gupta, a former associate of Finance Minister Hafeez Shaikh, is in deeper trouble after the conviction in a US court of Raj Rajaratnam, a hedge fund manager, on 14 counts of insider trading. The trial relied heavily on tapes that recorded several people including Gupta passing information to Rajaratnam.

Gupta was the founding partner of New Silk Route Partners, a Dubai-based private equity fund at which Shaikh was an operating partner before becoming Pakistan’s finance minister in 2010. Shaikh is not associated with the trial and his name has not been mentioned in any of the evidence that was used against Rajaratnam or Gupta.

The insider trading trial in New York, one of the largest in US history, revolved around Raj Rajaratnam, a Sri Lankan-born billionaire who ran one of the largest hedge funds in the world, the Galleon Group, which at its peak managed over $7 billion in assets.

Rajaratnam was convicted of using several insider contacts at various firms for illegally acquiring non-public information about the companies and making money by trading ahead of the market. The US government estimates that the 53-year-old billionaire made $63.8 million off those trades. Rajaratnam was convicted on all 14 counts of insider trading and is expected to be sentenced in July.

Most of Rajaratnam’s sources are American professionals of South Asian origin, including some Pakistani Americans. One of the key pieces of the prosecution’s evidence, however, was the tape of a conversation between Rajaratnam and Gupta, who was then a member of the board of directors at Goldman Sachs, the largest and most profitable investment bank in the world.

Gupta is accused of having passed on material information about Goldman Sachs to Rajaratnam, though he has not been charged with a crime. The US Securities and Exchange Commission has filed a civil suit against Gupta, who denies wrongdoing and has filed a countersuit against SEC.

New Silk Route lists Gupta as being “on leave” on its website. The private equity firm primarily makes investments in South Asia and the Middle East and is one of the largest shareholders of the Beaconhouse School System, the largest chain of private schools in Pakistan.



Published in The Express Tribune, May 14^th, 2011.