Goldman Sachs (GS) Director Rajat Gupta, who has decided not to stand for reelection, is in more trouble. A government probe of Gupta's relationship with Galleon hedge fund manager Raj Rajaratnam has turned up evidence that someone may have leaked Warren Buffett's plan to put $5 billion into Goldman during the financial crisis.
According to The Wall Street Journal, "The new disclosure stems from a government examination into whether the Goldman director, Rajat Gupta, gave inside information to Mr. Rajaratnam." The paper adds that telephone conversations between the two men were intercepted. Goldman's shares traded as low as $86 on Sept. 18, 2009. The stock soared to $125 by the time the Buffett deal was disclosed to the public.
Gupta has also been charged with leaking information to Rajaratnam about Goldman's earnings in June and September of 2008 before they were announced.
It is hard to imagine why Gupta, once the head of McKinsey & Co, would engage in activities that could ruin his reputation and perhaps his personal finances. At this point, there is no evidence that Gupta received money from Galleon. That, at least, would have provided a possible motivation.
It Keeps Piling Up
The news could not come at a worse times for Goldman. On April 16, the Securities and Exchange Commission "charged Goldman Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter."
Those allegations caused Goldman's stock to fall from $184.93 the day before the SEC announcement to $160.70 the day the charges were made public. The shares closed yesterday at $159.05. Goldman has engaged in an aggressive campaign to counter the charges, including calls that the bank's CEO Lloyd Blankfein has had with key customers.
No evidence yet indicates that anyone at Goldman or any other board members knew about the alleged Gupta leak. That gives the investment bank the opportunity to distance itself from the matter. But in the public's view, each piece of negative news adds to the perception that Goldman Sachs hasn't been playing on a level field.
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