Goldman Sachs Director May Have Passed Insider Info to Galleon
Rajaratnam has been accused of insider trading by the government and, as part of its investigation, "the government is examining whether Rajat Gupta -- a current Goldman director, former head of McKinsey & Co. and close associate of Mr. Rajaratnam's -- shared inside information about Goldman, the people close to the situation say," TheWall Street Journal reports. Another former McKinsey employee has already been charged in the case.
The information, if given at all, was passed during the financial crisis, when Goldman's shares were plunging. They recovered as Warren Buffett provided capital to the firm and the TARP gave it further support. The question that the government must answer now is whether Galleon traded on Gupta's information. Prosecutors must also determine the extent to which the information was valuable in determining the future value of Goldman's shares.
The news is another blow to the reputation of Goldman Sachs, America's most profitable investment bank. The public, the Obama administration and members of Congress have been outraged by the pay packages many Goldman executives received less than two years after the TARP bailout. There have also been questions about whether Goldman contributed to AIG's (AIG) failure by forcing the insurance company to pay off certain policies for derivatives owned by Goldman. It turned out that the payments were ones that the strapped insurer could not afford.
More recently, it was disclosed that Goldman helped Greece develop financial instruments that allowed it to hide the full extent of its debt problems. Goldman attempted to defend itself from all of these pieces of bad news in the shareholder letter in its annual report.
Goldman has only one defense for the multitude of criticisms against the firm, none of which have resulted yet in any government charges against the company: Its shareholders have seen Goldman stock rebound from the $55 where it traded during the credit crisis in late 2008 to over $179 recently. It also made record profits in its last fiscal year. That, in and of itself, has kept Goldman from becoming more of a whipping boy than it already is.