For Goldman Sachs, the insider trading case against a former board member, Rajat K Gupta, which ended in a conviction on Friday, was distracting and discomforting.
At least until now, it has also been very expensive.
Goldman Sachs has paid for the bulk of Gupta’s legal defence, which has cost nearly $30 million, according to two people with direct knowledge of the case who requested anonymity. Procter & Gamble, on whose board Gupta also served, has picked up the balance of the bill.
A jury found Gupta guilty of leaking Goldman’s private boardroom discussions to the former hedge fund titan Raj Rajaratnam. He was acquitted on a count related to divulging secrets about P&G.
Gupta, whose sentencing is scheduled for Oct. 18, plans to appeal.
But with Friday’s guilty verdict, Goldman has moved a step closer to getting paid back. Under a deal reached well before the trial, Gupta agreed that if he was found guilty of insider trading, he would reimburse the bank for the legal fees advanced to him. The bank, however, must continue to pay Gupta’s bills until a final resolution of Gupta’s appeal, a process that could take a couple of years and will surely escalate the costs of his defence.
Goldman has been advancing Gupta money to pay his lawyers’ bills because the bank’s bylaws require it to pay the legal fees of its top officers and directors for conduct that occurred while acting on behalf of the company. And Delaware — where Goldman is incorporated — has generous laws regarding indemnifying executives to protect them from incurring personal liability for their work while doing their jobs.
But indemnification rights are not unlimited. If the company has advanced legal fees to an executive and it is later determined that he violated certain criminal laws, the corporation can try to recoup the money that it previously advanced. NYT