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Why is Rajat Gupta less equal than others
Last updated on: November 6, 2012 11:38 IST

Shankar Sharma

He was given a prison sentence for purveying insider information, while Hank Paulson got off scot-free for doing the same, writes Shankar Sharma

On July 21, 2008, Hank Paulson, the then US treasury secretary, met around 15 major hedge
fund managers at the offices of Eton Park in New York -- itself one of the biggest hedge funds in the world. At least five of the 15 who attended were ex-Goldman Sachs, the firm that was headed by Paulson before he became the treasury secretary. That very morning, Paulson had spoken to The New York Times reporters and editors and had assured them that the government was looking into the book of Fannie Mae and Freddie Mac, and that this would calm the markets that had been fearing an imminent bankruptcy of these firms. Rediff.com » Business » Why is Rajat Gupta less equal than others

Why is Rajat Gupta less equal than others

whose sole business was to profit from any superior knowledge and analysis of events. This was material. . . but would wipe out the equity holders. Paulson sang a completely different tune: he revealed in precise detail (according to someone who attended that meeting) what the government proposed to do with Fannie and Freddie. and place them into 'conservatorship': a move that would allow the firms to stay in operation. .Last updated on: November 6. being selectively disseminated to a group of people whose jobs were to profit from such information. 2012 11:38 IST Share this Ask Users Write a Comment Print this article But in the meeting with the hedge funds later that day. Click NEXT to read further. non-public information. He told the elite group. that the government planned to seize the two firms.

Daniel Och of Och-Ziff and Roger Altman of Evercore Partners. i. GSO Capital (part of Blackstone group). on September 6. the government did indeed take over Fannie and Freddie and put it into conservatorship. by no less than the serving treasury secretary.And. (Imagine the brouhaha if something like this were to happen in India. Dinakar Singh of TPG Axon.com » Business » Why is Rajat Gupta less equal than others Why is Rajat Gupta less equal than others Last updated on: November 6. James Chanos of Kynikos Associates (a known short-seller).) Those who attended were the who's who of Wall Street: Taconic Capital. overnight.e. wiping out the equity holders. Precisely as Paulson had told the hedge fund group. Seven weeks later. Rediff. 2012 11:38 IST Share this Ask Users Write a Comment Print this article . Steve Mandel of Lone Pine Capital. Their stock prices fell 85 per cent from September 5 to September 6.

Now. who sought this information under the Freedom to Information Act.The government gave scanty information on the names of those present at the July 21 meeting to Bloomberg. On the Brink. by not cutting his already short position in these names. here is an interesting thing: the fund manager who recounted this tale to Bloomberg. Paulson's press secretary told Bloomberg to refer to Paulson's book on the financial crisis. was already short the stock at the time of the meeting. . . And. . he did not cover his short position after this meeting because Paulson had clearly informed the group that the government was going to 'wipe out the equity holders'. all based on Paulson's generous advice. that fund manager ended up profiting handsomely. by riding the short position all the way to the bottom . Except for the little inconvenient fact that there is no mention of this meeting in the book at all. So.

2012 11:38 IST Share this Ask Users Write a Comment Print this article . short interest in both these stocks rose after the July 21 meeting to hit a yearly high on July 24). it is almost given that nearly all those who attended that Paulson meeting would have been short these stocks.And. what is even more significant is that given the negativity surrounding Fannie and Freddie at that time. Rediff. The whole world was short Fannie and Freddie (for the record.com » Business » Why is Rajat Gupta less equal than others Why is Rajat Gupta less equal than others Last updated on: November 6.

since these stocks are going to zero.Paulson revealing the government's hand made the decision very easy for all these funds: "Don't cut your shorts. and 'how justice is dispensed speedily in the US'. But. Paulson's information could lead to only two trading outcomes: one. non-public information)." Perfect. an even more damning question arises: why would Paulson reveal negative information to these hedge funds. one is the Indian media's sickeningly fawning portrayal of the American justice system as one that 'doesn't spare the rich and powerful. Paulson got away clean. i. two. to get them prepared for an impending catastrophe. unlike ours where the well-connected get away'. . Not even an investigation. would this have amounted to a criminal offence on Gupta's part? Of the many things I don't like about this Rajat Gupta affair. What is even more curious is: why would Paulson reveal this to a bunch of hedge funds? Revealing this to commercial bankers would probably have some minuscule sense attached to it. not catastrophic. Nothing could be farther from the truth. then what is? If Rajat Gupta is guilty. and so on. If this is not giving out material. go short some Fannie and Freddie. to say the least. This short-trade generating advice coming from a regulator. No investigation by the Securities and Exchange Commission into the trading by these attendee hedge funds.e. and that too a seasoned pro like Paulson. that the equity investors would get wiped out by the government takeover? This sort of information from a regulator/government official is unheard of: they are supposed to give out generally positive information. if Rajaratnam had not sold an already long position in Goldman stock based on this material. hedge funds? And. is extremely suspicious. unsettling information like this. non-public information. why isn't Paulson? If Gupta had given Raj Rajaratnam information that Goldman Sachs was going to get an investment from Warren Buffet (and suppose. The US protects its own rich and powerful better than we can ever do.e. Nothing. or. hang on to your shorts in Fannie and Freddie. i.

. Buffet waved it aside. and Buffet joined him in keeping this a secret. He was Buffet's No. prior to getting Buffet to buy the company outright. After the deal was done. . When the problem came out. Then. The cover up had happened. No problem? Sokol traded on inside knowledge of material. since he chose not to report this to the authorities. Sokol told Buffet of this purchase. Buffet shrugged.Just a conspiracy of silence. The second part appears tomorrow . 2. Sokol bought shares of Lubrizol. and was widely tipped to take over from the old man. non-public information. we have the strange case of David Sokol. that was it. Sokol resigned. And. This is the first of a two-part series. First Global. Because any serious investigation would have led to Buffet himself becoming a party to any offence. The writer is Vice-Chairman and Joint Managing Director. saying it was no problem. Consideration for his old age? Well.