Rajat Guptas case

&
Evils of Insider
trading
Rajat Gupta -First Indian-born CEO of a
global Western company
Name - Rajat Kumar Gupta
Birth date - December 1948 (age 63)
BirthPlace - Kolkata, West Bengal, India
Residence - Westport, CT, USA
Ethnicity - Indian American
Citizenship - United States
Education - Alma mater IIT Delhi
Harvard Business School
Occupation - Consultant, Management expert
Years active - 1973-2007
Employer - McKinsey & Company, Inc.
Net worth - $100 million

Rajat Gupta -First Indian-born CEO of a global
Western company

Corporate chairman, board director or strategic advisor
to a variety of large and notable organizations:
Goldman Sachs,
Procter and Gamble
American Airlines
non-profits including
The Gates Foundation,
The Global Fund and
the International Chamber of Commerce.

Rajat Gupta -First Indian-born CEO of a global
Western company


Rajat Gupta is additionally the co-founder of
four different organizations:
The Indian School of Business with Anil Kumar,
The American India Foundation with Victor
Menezes and Lata Krishnan,
New Silk Route with Parag Saxena and
Victor Menezes, and Scandent with Ramesh
Vangal.

Rajat Guptas Criminal Background

Criminal charge - Conspiracy, securities fraud
He was convicted in June 2012 on insider trading
charges stemming from the Raj Rajaratnam Galleon
Group case on four criminal felony counts of
conspiracy and securities fraud
Criminal penalty - Sentencing pending (Oct 17` 2012)
Criminal status - Convicted, appeal pending
Rajat Guptas Case
On March 1, 2011, the SEC filed an administrative civil
complaint against Gupta for insider trading with
billionaire and Galleon Group founder Raj Rajaratnam.
On October 26, 2011 the United States Attorney's Office
filed criminal charges against Gupta. He was arrested in
New York City by the FBI and pleaded not guilty. He was
released on $10 million bail on the same day
In April 2012, another charge relating to passing P&G
information was added by the prosecution
Rajat Gupta's trial began on May 21, 2012.[70]
On June 15, 2012, Gupta was found guilty on
three counts of securities fraud and one count
of conspiracy.He was found not guilty on two
other securities fraud charges.
Sentencing is scheduled for 17 Oct 2012 .
Rajat Guptas Case
Mr. Gupta was convicted on three counts of
securities fraud and one count of conspiracy
for passing along confidential boardroom
information about Goldman to a hedge fund
that earned millions of dollars trading on his
tips.
He was acquitted of two counts of securities
fraud, including the only one relating to P&G.

Rajat Guptas Case
Insider trading and their evils

Insider trading
Insider information is information (about company strategy
and plans) that someone within a company has but that is
not available to those outside the company.

The moral problems connected with insider information
concern the use that individuals may make of such
information while they are still members of the firm.


Two aspect of the problem:
1. One is that of some one within the firm using information
for his or her private gain, at the expense of the firm.
This is called conflict of interest

2. The other is the use of insider information by someone
within a firm advantage over those not in the firm.
.
Insiders of the company

Insiders need not be the person who is
directly connected to the company because of
their position or otherwise.
SEBI has defined insider as a person
connected to or deemed to be connected and
has reasonable connection with unpublished
price sensitive data of the company.
Directors/CEOs/Large shareholders/managers/workers
Independent non-executive directors, It includes a
person who is a connected person six months prior to
an act of insider trading
Share Transfer Agents/registrar to an issue,
Investment company/trustee company,
Subsidiary of a company and relatives of connected
persons,
Asset management company,
Merchant banker/debenture trustee/ broker/sub-
broker,
Portfolio manager/investment adviser/analysts
Accountancy firms, law firms/consultants Or an
employee thereof

Evils of Insider Trading
Few examples of Insiders Information

Periodical financial results
Intended declaration of dividends
Issue of securities by way of public/right/bonus etc
Major expansion plan or execution of new project
Amalgamation/merger or takeover,
Disposal of whole or substantial part of undertaking,
Any significant change in policies, plans or operations
of the company.
Example
Insider trading where a company director knows that the
company is in a bad financial state and sells his shares in it
knowing that in a few days time this news will be made
public together with an announcement of a cut in dividend
payment.

Likewise, the director would be insider dealing if, on being
informed before it was generally known by the public, that
the company has discovered oil or gold on its own land, he
bought more shares in the company in the not unrealistic
expectation of an increase in their market value as a result
of the subsequent public announcement.

The Sebi Act
Insider trading is an evil by which any stock market is
infected to cause grave damage to the common investor.
It erodes the confidence of the investor and undermines its
credibility. It is often said that insider trading is not as
rampant in any other stock market in the world as in the
Indian market. By the promulgation of the Securities and
Exchange Board of India (Insider Trading) Regulations, 1992
("the Regulations"), Sebi attempted to give a concrete
shape, by a legislative measure, to one of the specific
functions which s.11 of the Securities and Exchange Board
of India Act, 1992 ("the Sebi Act") requires Sebi to
discharge. The object of this measure is to prevent and curb
the menace of insider trading in shares.

Who Is Affected by Insider Trading?
Insiders - officers, directors, and other key
employees of a firm
Market professionals - informed non insiders,
including securities analysts, brokers, or
arbitrageurs,
liquidity traders - sometimes referred to as
noise traders, are short-term stock market
participants
Investors - small or large shareholders