Rajat Gupta, the former director at Proctor and Gamble and Goldman Sachs is facing criminal charges for insider trading. He has been charged with conspiracy to commit securities fraud and committing securities fraud in five instances. Gupta is accused of sharing inside information with Raj Rajaratnam, one of the founders of the Galleon Group, a New York based hedge fund.
Mr. Gupta pleaded not guilty despite being implicated in Rajaratnam’s trial which took place in October 2011. Rajaratnam was sentenced to 11 years for insider trading. Gupta was implicated through both testimony and through secretly recorded phone calls. He is accused of revealing sensitive information to Rajaratnam concerning both Goldman Sachs and Proctor and Gamble. Gupta was also invested in at least two of Rajaratnam’s hedge funds and the two had worked together on several projects.
What is Insider Trading?
The term ‘Insider Trading’ encompasses both legal and illegal actions. The legal aspect is when insiders of a company buy and sell their own stock, basing their decision on publicly available information. The illegal aspect is when they do so based on information which is not for public consumption. Here, they are using their insider status for their own profit, which breaches their fiduciary duty to the company they work for.
Another kind of insider trading is when there are instances of ‘tipping’. This is when non-public information is revealed to those who will use it for their own gain. Those who can be held guilty of insider trading are corporate officers, employees and directors who revealed significant information about their companies. Similarly, people who were tipped and who take advantage of the information are guilty of insider trading. Furthermore, employees of institutions like banks, law firms, brokers, etc who have access to sensitive information and who use it to trade are also considered guilty.