Rajat Gupta Surrenders to Federal Authorities

Source :PatriciaHurtado:Bloomberg:oct 26,2011:6.34pm ist

Rajat Gupta, the former Goldman Sachs Group Inc. director once accused of feeding tips to Galleon Group LLC hedge fund manager Raj Rajaratnam, surrendered to federal authorities to face insider trading charges, making him the highest-ranking executive to be arrested in the probe.

Gupta, 62, gave himself up today in Manhattan to face “various insider trading charges,” said J. Peter Donald, an FBI spokesman. After a four-year investigation by the agency of insider trading at hedge funds, Gupta will be prosecuted by the office of Manhattan U.S. Attorney Preet Bharara, who with the FBI has directed a nationwide investigation of illegal trading at hedge funds, technology firms, banks and consulting firms.

“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless,” his lawyer, Gary Naftalis, said in an e-mailed statement yesterday. “He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo.”

Westport Home

Gupta left his home in Westport, Connecticut, opposite Long Island Sound today, at 6:15 a.m. The case against him comes seven months after federal prosecutors in court first called Gupta and Rajaratnam’s brother Rengan “unindicted co- conspirators.”

Gupta isn’t being charged based on evidence provided by Raj Rajaratnam, said a person familiar with the matter who declined to be identified because the matter isn’t public. The charges are based on evidence uncovered by the Federal Bureau of Investigation’s probe, the person said.

Ellen Davis, a spokeswoman for Bharara, declined to comment.

Rajaratnam, the central figure in what prosecutors have called the largest crackdown on insider trading at hedge funds in U.S. history, was arrested in October 2009. He was convicted of conspiracy and securities fraud by a Manhattan federal jury in May and sentenced to 11 years in prison on Oct. 13. More than 50 people have been charged in the probe.

Interview

In an interview in Newsweek this month, Rajaratnam said prosecutors pushed him to plead guilty to one criminal charge and inform against Gupta. Rajaratnam understood that he would be sentenced to as little as five years in prison, according to the Newsweek article.

Rajaratnam told Newsweek that he refused to inform on Gupta or wear a wire to record him for the FBI.

At Rajaratnam’s trial, Goldman Sachs Chief Executive Officer Lloyd Blankfein testified that Gupta violated the New York-based bank’s policies by allegedly telling the defendant about the company’s results and plans.

The U.S. Securities and Exchange Commission in March filed an administrative action contending Gupta passed inside information to Rajaratnam about Goldman Sachs and Procter & Gamble Co. That action was dropped in August after Gupta, who denied the allegations, sued the SEC for violating his rights by not bringing its case in federal district court.

Administrative Proceeding

In the administrative proceeding, the SEC had claimed Gupta tipped Rajaratnam, 54, aboutBerkshire Hathaway Inc.’s $5 billion investment in New York-based Goldman Sachs. The agency also said Gupta told Rajaratnam about quarterly earnings of Goldman Sachs and Cincinnati-based P&G, the world’s largest consumer products company.

Gupta left the Goldman Sachs board in 2010 and stepped down from P&G’s board in March.

Aside from serving on those two boards, Gupta from 1994 to 2003 ran McKinsey & Co., the global consulting firm. He remained a senior partner there until 2007.

Northwestern, Harvard

He has been on advisory boards at Northwestern University’s Kellogg School of Management, University of Pennsylvania’s Wharton School, Massachusetts Institute of Technology’s Sloan School of Management and Harvard Business School, his alma mater. In 2001, Kolkata-born Gupta founded the Indian School of Business in Hyderabad.

As of May 2010, Rajaratnam had a stake in a fund managed by New Silk Route NSR Partners LLC, co-founded by Gupta. At a January 2007 benefit honoring Rajaratnam called “A Night for India,” Gupta was the honorary chairman along with conductor Zubin Mehta, according to a program.

Blankfein said Gupta and other board members were told in October 2008 that Goldman Sachs was facing the possibility of a quarterly loss for the first time since it went public in 1999. Prosecutors said Gupta tipped Rajaratnam, who sold Galleon’s position in Goldman Sachs, warding off millions of dollars in losses.

Gupta Recording

At the Galleon co-founder’s trial, prosecutors also played a secret recording of a July 2008 phone call in which Gupta can be heard telling Rajaratnam that the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.

The SEC brought its action against Gupta in Washington on March 1. He sued in Manhattan federal court on March 18, claiming the SEC violated his rights by pursuing an administrative action rather than a lawsuit. Gupta would have more procedural protections in district court, including the right to a jury trial and the use of federal rules of evidence.

U.S. District Judge Jed Rakoff ruled in July that Gupta could argue that the agency intentionally singled him out for unfair treatment in retaliation for claiming his innocence. The judge said that all the SEC’s other lawsuits related to the Galleon insider-trading case were in federal court.

The agency dropped its administrative proceeding in August and agreed that it would bring any subsequent action against Gupta in district court. Gupta agreed to withdraw his lawsuit against the SEC.

U.S. Plans to Charge 10 More After Rajaratnam Arrest

Raj Rajaratnam, billionaire founder of the Galleon Group,

Source :Bloomberg:Joshua Gallu and David Scheer:Oct 19,2011

 Federal investigators plan to charge at least 10 securities professionals with insider trading, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said.

The pending crackdown, more than two years in the making and among the biggest undercover operations into insider trading, may yield charges against hedge-fund managers and their associates as early as this week, the people said, declining to be identified because the cases aren’t public. Authorities had planned to arrest Rajaratnam this week as part of a broader sweep, expediting it after learning he had bought a plane ticket to travel to London on Oct. 16, one person said.

The case against Rajaratnam, built on recorded conversations within a web of alleged conspirators, offers a glimpse of how U.S. investigators are using more aggressive tactics to identify illegal trades hidden within a blizzard of hedge-fund investments. Additional probes stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments. Some probes, like the one against Rajaratnam, rely on wiretaps.

“If you’re going to shoot the king, you better shoot to kill,” said Bradley Bennett, a law partner atBaker Botts LLP in Washington who formerly focused on insider-trading cases as an SEC investigator. “If they’re going to take on a billionaire, they need to have the strongest possible cases. The defendant’s own words are the strongest possible evidence.”

Intel, McKinsey, IBM

SEC spokesman John Heine declined to comment, as did Alejandro Miyar, a spokesman for the Justice Department.

Rajaratnam, who founded the Galleon Group in 1997, was arrested with five alleged conspirators on Oct. 16 in what prosecutors called the biggest insider-trading ring targeting a hedge fund. Prosecutors said he and his firm reaped as much as $18 million by investing on tips from a hedge fund, a credit- rating firm and employees within companies including Intel Capital, McKinsey & Co. and IBM Corp. IBM said today it put executive Robert Moffat, one of Rajaratnam’s alleged conspirators, on temporary leave following the charges.

Rajaratnam, born in Sri Lanka’s capital of Colombo, has a net worth of $1.3 billion, making him the 559th richest person in the world, according to Forbes Magazine. In the early years of this decade, Galleon ranked among the world’s 10 largest hedge funds, managing $7 billion at its peak in 2008.

No Plea Entered

Rajaratnam hasn’t yet entered a plea. His lawyer, Jim Walden, said last week that prosecutors are misconstruing the evidence and that the case isn’t as strong as they allege.

U.S. senators including Pennsylvania Democrat Arlen Specter have pressed regulators to more aggressively scrutinize hedge funds. Some of those concerns were spurred by the SEC’s decision in 2006 to close an insider-trading probe of Pequot Capital Management Inc., once the world’s biggest hedge- fund manager, after investigators said they lacked evidence to bring the case.

The SEC later reopened part of the inquiry focusing on whether Pequot abused information from a former Microsoft Corp. employee. In August, Pequot and founder Arthur Samberg, 68, said they may be sued by the agency. Insider-trading claims would be “without merit,” they said.

The SEC has also expressed concern that hedge funds may engage in insider trading based on information from their own investors.

Many cases begin when stock exchanges send the SEC reports on traders who place profitable bets shortly before corporate announcements. Someone who rarely trades may have difficulty explaining later what prompted an uncharacteristic investment. Hedge funds, on the other hand, can more plausibly attribute their windfalls to skill or chance.

Blue Sheets

To overcome that hurdle, the SEC began using computer software about two years ago to sift hundreds of millions of electronic trading records, known as blue sheets, attached to the stock exchange reports about suspicious incidents, according to people familiar with the project. By looking for patterns in the library of data, they identified groups of traders who repeatedly made similar well-timed bets.

Once investigators find a cluster of correlated trades, they tap other sources of information to unravel how its members obtain and share tips, the people said. For example, if a group profits on trades before a series of corporate takeovers, the SEC may check so-called league tables listing which investment banks or law firms advised the deals. If one firm was involved in all of them, an employee there may be the source of the leak.

Data Mining

The data-mining strategy yielded one of its first cases in February, when the SEC and U.S. prosecutors charged takeover advisers at UBS AG and Blackstone Group LP with taking part in an $8 million insider-trading case, people familiar with the inquiry said. Authorities used a “novel” technique to detect the scheme, the SEC’s lead investigator on the case, Daniel Hawke, said at the time, without elaborating.

While the investigation of Rajaratnam didn’t stem from the data-mining project, it did start with the SEC’s identification of suspicious trades, people with knowledge of the case said.

Investigators developed at least one informant in the ring, who began meeting in November 2007 with agents from the Federal Bureau of Investigation, according to charging documents. Prosecutors also obtained warrants for wiretaps, a level of surveillance typically reserved for organized crime, drug syndicates and terrorism prosecutions.

Prosecutors are also being helped by at least three of Rajaratnam’s former colleagues, the Wall Street Journal reported today, citing people familiar with the criminal investigation. Those people include California hedge-fund managers Ali Far and Choo Beng Lee, the Journal said.

Further Surveillance

Surveillance during the probe of Rajaratnam, 52, led investigators to other suspects and more charges are likely, people familiar with the matter said. U.S. Attorney Preet Bharara said Oct. 16 the Justice Department will continue using wiretaps to root out insider-trading.

The SEC is adopting other strategies to crack difficult cases. SEC Enforcement Director Robert Khuzami, a former federal prosecutor who joined the agency in March, said last week that he’s seeking greater access to grand-jury evidence and wants to expand deal-making and cooperation with informants.

“Insider-trading cases are notoriously difficult to prosecute because the evidence is often circumstantial,” said Bill Mateja, a former Justice Department lawyer now at Fish & RichardsonPC in Dallas. “If law enforcement is actively going to go out and target this with covert investigative techniques, I think it’s going to keep people on their toes.”

The filed cases are U.S. v. Rajaratnam, 09-02306, and U.S. v. Chiesi, 09-02307, U.S. District Court for the Southern District of New York (Manhattan).

Diwali greetings

Why RBI should, and likely will, raise rates

Source :BS:Sajjid Chinoy /  October 18, 2011, 0:45 IST

The writer is India economist, JPMorgan
It’s that time again. Inflation continues to remain dangerously close to double digits. Wage growth remains buoyant. Input prices increased across the board in September, and inflationary expectations remain elevated. Yet, public pressure on the Reserve Bank of India (RBI) to pause gets stronger and stronger!


Proponents of a pause would look at last week’s data and conclude the momentum of growth and inflation are slowing. They would add central banks around the world have moved to a pausing, even an easing, mode. And, this should be reason enough for RBI to call it a day


Given the pressure on RBI from the industry and the market, this is undoubtedly a close call. But, while a pause cannot be ruled out, we expect RBI to continue on a path of monetary tightening and raise policy rates by 25 basis points at the next review. And, they would be perfectly justified in doing so. Here’s why.



First of course, the economy is slowing. But that’s not the relevant question. The question is whether or not it is slowing enough to dent pricing power across the board. There is no evidence to suggest we have reached that point yet. Yes, the momentum of core inflation slowed in September. But one swallow does not a summer make.


Several times last year, the momentum of core slowed one month, only to re-accelerate sharply the next. What was ominous, and largely missed, in the September inflation print is input prices rose across the board and are likely to pressure core inflation in time to come. Until the momentum of core slows on a sustained basis, it would be premature to conclude the economy has slowed enough.


Second, much is made of the global uncertainty. Yet, recent data flow has surprised consistently on the upside, with Euro area industrial production, for example, stronger than expected for a second month. As a result, commodity and crude prices are at their highest levels in a month.
Third, there are increasing fears that fiscal policy would not be as tight as once thought. The looser the fiscal conditions are, the higher the commodity prices are, the tighter the monetary conditions would have to be.


And, here’s the irony: The sharp currency depreciation over the last two months has meant that despite the rising policy rates, overall monetary conditions have actually loosened over the last month! The weaker rupee has increased the domestic cost of tradables and thereby, undercut some of the impact of previous rate increases. The implication is policy rates need to do more of the heavy lifting.



For all these reasons, we expect (and hope) the central bank would ignore the rising chorus and continue raising rates. To pause now would be to undo much of what was courageously done in the recent past.

Black-money returning as export receipts

Source : S.Muralidharan:BL:24th Oct 2011

When black money can enter India through over-invoiced exports 

and participatory notes, VDIS will have few takers.

There was a time when exports were given a lot of tax sops — such as duty drawback, cash assistance and income-tax exemption, either full or partial — which tempted unethical businessmen to inflate their exports through over-invoicing or other means. Over-invoicing of imports is done to get a kickback from the obliging suppliers, especially those for whom access to Swiss and other convenient bank accounts is easy and laughably simple. Over-invoicing of sales and its variant, exports, on the other hand, is done to make legitimate the illegal money one has accumulated over the years.

INFLATED OR FAKE EXPORTS

At the height of fiscal indulgence to exports, there was a bizarre story doing the rounds. A crack team of sleuths headed to Dubai on a tip-off and their efforts were amply rewarded when the export consignment to that place from India, worth several crores, turned out to be a heap of rags neatly packed with layers of insulation and other material designed to give it the much-needed verisimilitude, and more importantly to ward off any attempt at opening the boxes!

This was the tip of the iceberg regarding the widespread practice of inflated or fictitious exports with an eye on the hefty tax benefits. Relentless pressure from World Trade Organisation saw the Indian government gradually withdrawing these benefits — sometimes in a phased manner. But the steady weakening of the Indian rupee over the last couple of months coupled with the government's threat to go after those who have salted away their ill-gotten wealth abroad has once again revived the practice of inflated or fake exports. Exports to Bahamas, of all places, has jumped 1000-fold from $2.2 million in 2008-09 to $2.2 billion in 2010-11, bearing out the sneaking suspicion that there is something amiss in the sudden soaring of exports all round.

Export of services lends itself to an easier manipulation of invoices, given the fact that, unlike goods, services are always unknown quantities. Who knows, several Indians may be waiting in the wings ready to proffer advice and consultancy for an exaggerated fee, all designed to bring back, duly laundered, the ill-gotten money stashed away abroad. The Indian government has recently entered into information-sharing agreements on tax matters with several recalcitrant nations allegedly giving sanctuary to crooks and criminals. Bahamas, incidentally, is one of them. India can, therefore, crack the whip and ask to verify whether all these so-called exports were real or fictitious, normal or overstated.

But if it chooses to wink at them, it would appear that it doesn't mind the shenanigans of actual or charlatan exporters in the smug knowledge that, after all, the country is getting precious foreign exchange.

In any case, the revival of the over-invoicing route to money laundering should have dampened sufficiently the enthusiasm of the government in going ahead with Voluntary Disclosure of Income Scheme (VDIS) II that seeks to exclusively address the problem of Indian money stashed away abroad.

Indeed, given this fertile and hassle-free route, no one would seriously consider pressing ahead with VDIS II. Further, a lot of water has flowed down the bridge ever since VDIS 1997 was implemented.

PARTICIPATORY NOTES

The Foreign Institutional Investors' (FII) scheme with its inscrutable Participatory Note (PN) feature enables round-tripping which, shorn of jargon, means Indian black money stashed away abroad coming back in the form of stock market investments, riding piggyback on foreign investors.

Mauritius, too, is a favourite money laundering destination for Indians with black money abroad in view of the tax exemption it confers to a Mauritius resident from tax on capital gains earned in India. With such relatively hassle-free avenues, perhaps not many would take the trouble of availing of the tax amnesty scheme, or its variant, VDIS II, supposedly on the anvil.

Investigation authorities in India have always been stymied in their work when their audit or investigation trail takes them beyond India. But the Indian government should, like the US government, read the riot act to the foreign governments indulging crooks and criminals. Better still, there must be pre-emptory strikes like abrogation of the patently invidious tax treaty with Mauritius and the scrapping of the attractive PN feature of the FII scheme.

The wily captains of industry in India have got for themselves a permanent amnesty scheme by getting written into the Indian income-tax law through the Finance Act, 2011, a hugely concessional tax of 15 per cent on dividend received from foreign companies. The government cannot be seen running with the hare and hunting with the hounds.

(The author is a Delhi-based chartered accountant.)