NEW YORK, NY - MARCH 08: Billionaire Galleon Group hedge fund cofounder Raj Rajaratnam departs Manhattan Federal Court at the end of the first day of his trial on insider trading charges March 8, 2011 in New York City. Prosecutors allege that Rajaratnam pocketed $45m by illegally trading on insider stock tips. (Image credit: Getty Images via @daylife)
On December 5, 2011, hedge fund founder (Galleon Group) Raj Rajaratnam entered federal prison in Massachusetts to begin serving an 11-year prison term. During Rajaratnam's trial, a number of his former friends/business associates cooperated with the government in order to get a reduced sentence. Now, it may be Rajaratnam who is offered a sweetheart deal to sort things out for the government.
Rajat Gupta, former McKinsey & Company managing director, former Goldman Sachs director, former Proctor & Gamble director, is accused of passing insider information on to Raj Rajaratnam at Galleon. The trial is expected to start on May 21, and the allegations are that Gupta passed inside information on to Rajaratnam about both Proctor & Gamble and Goldman Sachs. That leak, the government alleges, allowed Rajaratnam to make millions of dollars in stock trades. But there is a new twist to the case. The government prosecutor, Reed Brodsky, told Judge Jed S. Rakoff yesterday that there is another Goldman Sachs employee that also passed illegal tips to Rajaratnam .... thus providing Gupta with the out that, "Raj must have used the other guy's tip because I wasn't the source of the leak." In a criminal proceeding, the defense wins if there is reasonable doubt as to "guilt" .... this revelation certainly helps that cause.
There is only one person who can sort this out and he is currently sitting in prison; Raj Rajaratnam. The government now needs Rajaratnam to step forward and testify as to whether he got inside information from Gupta, or the "other" Goldman employee, or neither of them. Raj can either come forward and throw his long time friend, Gupta, under the bus and thereby get an early release from prison .... or he can testify and clear his friend and continue on with his 11 year sentence .... or he can stay in prison and say nothing.
It is an interesting turn of events, because now we are not sure if Rajaratnam's testimony will help Gupta or the government. Either way, he's still in control ... just like the old days.