Case Overview:

Raj Rajaratnam was the Sri Lankan billionaire, who was situated in America. He established the
management firm named Galleon Group for obtaining investments from the investors. Due to
have authority to access all the stocks, he traded several stocks as well as information of public
companies to the outside people. According to the law, the company cannot leak any private
information of public company’s stocks (Ferrell and Fraedrich, 2015, p.530). It is illegal and the
people found doing this kind of activity should be charged as guilty. In the year of 2009, Raj
Rajaratnam was arrested based on the 14 charges of wire fraud as well as securities. At first, he
was released by paying a bond of 100 million dollar. He hired several renowned defense
attorneys to rescue himself. In the year of 2011, he was proved as guilty on the all given charges.
Rajat Gupta, Danielle Chiesi, Rajiv Goel and many other renowned persons from various reputed
business organizations were also important characters of this case as they had helped Raj
Rajaratnam in this illegal activity. They made phone calls to Raj Rajaratnam and informed him
to purchase the stocks of Goldman Sachs, Mckinsey & Co, Intel and many other companies. The
investigators used the wiretaps regarding the conversations with his partners to prove him guilty.
In addition to this, the government has gathered several important witnesses, who took active
part with Raj Rajaratnam in this illegal insider trading activity (Jung, 2014, p.295). 19 members
of Galleon Group surrendered and some of them agreed to help the government by providing
sufficient proofs against Raj Rajaratnam. According to the report, it was the biggest fraud case in
the history of insider trading. About 26 people were found guilty for the activities regarding
fraud as well as conspiracy.
1. Comment on Rajat Gupta’s directorships and chairmanship on various Boards of
Directors.

DUTIES as a DIRECTOR

Unauthorized internal information, if disclosed, may cause problems for the company,whether
this information is used to assist in irregular trading or not.
Every Individual has a responsibility, who is an employee of the Company to preserve any
information which has not been publicized or maintain the confidentiality of information.
However, in this case, this has nothappened. Gupta, who possessed sensitive information because
of directorship, hadn’t maintained the confidentiality of information. He disclosed financial
results of many companies to his close friend, Rajaratnam who exploited of such information
that is illegal.Gupta had a pure intention to commit fraud by providing information to his
business partner of another company.
Precautions should be considered when a person, who works for an employer, has sensitive
information that could affect the share price of the organization.  That person is not supposed to
misuse of non-public information. Precautions are as follows:  file should be maintained
securely, don’t discuss such information in that areas where the chances of such information
being heard by the un-authorized person.

VOLUNTARY VERSUS FORCED RESIGNATION

In this scenario, Gupta has made voluntary resignation despite not being forced to resign by
companies. When an employee is deliberately asked for leave his position due to some issues
caused by his wrongful act, this situation is called Forced resignation.Forced resignation
adversely impacts on the reputation of employee more than voluntary resignation when an
individual was involved in ill legal activities or Individual faces litigation and charges.
When director faces litigation and penalty or involves in ill legal activity, he should resign
voluntarily if he found guilty. In the high position, the employee maywant to leave before the
press reveals more negative information about him. To avoid this, thecompany allows dismissed
employee to “save face” in a more graceful manner exit, by asking for resignation voluntarily
from his position.

COMPANIES’ REACTION

Shareholders of the organization must be informed by the company when directors of the
company are involved in such activity that leads to deteriorating the image of an organization so
that they could take sound decisions. In Procter& Gamble, Planned SEC civil action against
Rajat Gupta had come into the knowledge of the board of directors “a few weeks” in advance.
Since Gupta submitted written assurance to the company that the allegations had no merit,
therefore, Procter & Gamble decided not to inform the shareholdersof this issue. The
organization should not rely on the single source of information whichhad to be investigated.

STAKEHOLDERS’ INTEREST

 Any issue with respect to Directors is always material, and that issue must be brought into the
knowledge of shareholders. There are two types of Materiality i.e. Quantitative and Qualitative.
In this case,information was qualitatively material.Sometimes by hiring a director who is well
competent and has successful past track would lead to increase the Market share price of the
company.