Rajaratnam faces new charges in Goldman Sachs 'fraud' | business | Hindustan Times
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Rajaratnam faces new charges in Goldman Sachs 'fraud'

business Updated: Apr 17, 2010 14:27 IST

IANS
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As US authorities charged Goldman Sachs with defrauding investors in a sale of securities tied to sub-prime mortgages, prosecutors alleged Galleon Group founder Raj Rajaratnam had received confidential tips about Goldman's stock from three Indian American executives.

The Securities and Exchange Commission Friday charged New York-based Goldman and a vice president, Fabrice Tourre, for their failure to disclose conflicts in a 2007 sale of a so-called collateralised debt obligation. Investors in the CDO ultimately lost $1 billion, the SEC said.

The SEC alleged that the investment bank allowed hedge fund Paulson & Co. run by John Paulson, who made billions of dollars betting on the subprime collapse, to help select securities in the CDO.

Meanwhile, federal prosecutors said in a filing in Manhattan federal court that Sri Lankan Tamilian billionaire
Rajaratnam, who faces federal insider trading charges, sought to acquire secret information about Berkshire Hathaway Inc.'s 2008 purchase of preferred shares in Goldman Sachs Group Inc.

A letter from federal prosecutors to Rajaratnam's lawyers detailing new allegations of insider trading was made public in the filing. In it, prosecutors elaborated on an earlier claim that Rajaratnam tried to use confidential information to trade on Goldman Sachs stock.

The filing doesn't identify Rajaratnam's source for information about Goldman Sachs. But federal prosecutors are probing whether Rajaratnam received confidential tips from Goldman Sachs director Rajat Gupta, the Wall Street Journal reported. Gupta is the former worldwide manager director at McKinsey & Co. Inc.

The Journal, citing people close to the matter, also reported that Rajat Gupta notified Goldman Sachs in March that he wouldn't stand for re-election as a director after prosecutors told him they were reviewing recorded telephone calls between him and Rajaratnam.

Through a spokesman, Gupta told the Journal his decision to step down was due to "other commitments." He had been a Goldman director since 2006.

Friday's filing identifies some of the other alleged sources of Rajaratnam's tips, including Anil Kumar, a former McKinsey & Co. director, ex-Intel Corp. managing director Rajiv Goel, and former hedge fund manager Ali Far. They have pleaded guilty. Many other alleged sources were not disclosed.

Responding to the charges, Rajaratnam asked US District Judge Richard Holwell Friday to exclude new allegations by prosecutors of improper trading involving more than 20 companies not previously disclosed in his criminal insider-trading case.

His lawyer, John M. Dowd, asked the court to exclude the new allegations, calling it "an unfair and prejudicial attempt to ambush Mr. Rajaratnam."

Rajaratnam and Danielle Chiesi, a former consultant for hedge-fund firm New Castle Funds LLC, are set to go to trial in October on charges of conspiracy and securities fraud. The two were originally arrested in October 2009.
Both have denied wrongdoing.