Throughout the U.S. government’s ongoing insider trading investigation, much of the outrage has centered on rich and powerful investors using improperly-obtained information to gain an edge on the mom-and-pop investor. Tuesday’s SEC charges against former Goldman Sachs board member Rajat Gupta, which allege the director shared non-public information with hedge fund manager Raj Rajnaratnam, just adds to the perception that the financial markets are not a level playing field.
Mark Rifkin, a partner at law firm Wolf Haldenstein Adler Freeman Herz specializing in securities and shareholder rights litigation, said Tuesday’s charges against Gupta “reinforced the suspicion that big-money guys are in better position to profit, but not because they are smarter or better investors.”
Gupta stepped down from the board at Goldman last spring, around the same time the Wall Street Journal reported the former McKinsey executive was linked to the insider trading investigation into Galleon.
Perhaps the worst part of the actions, which Gupta is denying through his lawyer, is the betrayal of trust that comes when an outside director – who is voted onto a board with the explicit mandate to protect shareholders and keep management accountable – uses his position to profiteer, or help his friends profiteer, says Rifkin.
SEC Division of Enforcement Director Robert Khuzami said “Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets. Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions.”
“It’s a breakdown in the system, says Rifkin. And what happens, he wonders, the next time Blankfein has to share sensitive information with his board ahead of its public release?
“The bigger issue is whether it is one rogue director or if it represents something about the culture,” says Rifkin. “Gupta was on the governance committee! Talk about the fox in the henhouse.”
Goldman Sachs declined to comment on the charges against Gupta Wednesday. The director is also alleged to have passed Rajnaratnam pre-release earnings figures from Procter Gamble, where he was also on the board. The consumer products maker confirmed that Gupta stepped down from its board Tuesday. American Airlines parent AMR, where Gupta is also a director, declined to comment on the matter, as did Buffett’s Berkshire Hathaway.
The SEC’s allegations are totally baseless. Mr. Gupta’s 40-year record of ethical conduct, integrity, and commitment to guarding his clients’ confidences is beyond reproach. Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr. Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.
(CNN) — A Navy intelligence specialist was charged Thursday in an espionage sting in which he allegedly sold documents marked “Top Secret” and “Secret” to an undercover FBI agent, according to the Navy.
The charges against Spc. 2nd Class Bryan Minkyu Martinare are for attempting to forward classified information to a person not authorized to receive such information, according to the Navy statement.
A court-martial date has not been set.
Martin is charged with four specifications of attempted espionage and 11 specifications of mishandling classified information, the Navy said.
All charges stemmed from incidents that allegedly occurred while Martin was assigned to the Expeditionary Combat Readiness Center at Joint Expeditionary Base Little Creek – Fort Story in Virginia, the Navy said.
Martin was apprehended by special agents of the Naval Criminal Investigative Service and the FBI on December 1, in Fayetteville, North Carolina, after he was suspected of attempting to sell classified information.
Martin is currently being held in Naval Brig Norfolk in Virginia.
According to an affidavit filed in U.S. District Court last December, Martin, 22, met with an FBI undercover agent posing as an intelligence officer of an unnamed foreign country three times at a motel in Fayetteville, near the Fort Bragg Army base, where he had been working since September.
The court documents alleged he was paid a total of $3,500 in cash, and he handed over documents marked “Top Secret” and “Secret” and signed receipts for two of the payments.
“Investigators have a high level of confidence that no classified information was actually delivered to any unauthorized persons,” an NCIS statement last December said.
The Navy did not release details of how Martin came to the attention of the investigators or how he allegedly made contact with the agent posing as a spy.
PARIS – Renault will face consequences over a case of suspected industrial espionage in which the carmaker has said it may have been tricked, French Finance Minister Christine Lagarde said on Friday.
Renault admitted for the first time in an interview in Le Figaro’s Friday edition that it had reasons to doubt it had been a victim of industrial espionage.
The carmaker had fired three executives and lodged a legal complaint in January over suspicions of spying targeting its high-profile electric vehicle programme, amid fears that information had been passed to a foreign power.
“What counts today is getting to the truth and getting there quickly, and if the suspicions were unfounded that justice be done, confidence restored and compensation paid,” Lagarde said in an interview on RMC radio.
The minister added that “all the consequences” would have to be faced in terms of responsibility for the affair.
The case has strained relations between Renault — which is 15 per cent state-owned — and the government, as the carmaker came under fire for not informing authorities of its suspicions soon enough and carrying out its own investigation first.
The affair had also threatened to spark a diplomatic spat when news of the sackings broke in January, after a government source said investigators were following up a possible link with China in initial probes before a formal inquiry was launched.
“One shouldn’t shoot without a sight or accuse without proof,” Ms Lagarde told RMC.
Renault’s lawyer, Jean Reinhart, said on Thursday that French intelligence services were still probing the existence of bank accounts in Switzerland and Liechtenstein as part of the inquiry and dismissed reports the carmaker had been tricked.
The existence of the possible accounts is a key part of the case against the three fired executives.
But Renault chief operating officer Patrick Pelata told Le Figaro “a certain number of elements lead us to doubt”, adding that the company had arrived at two hypotheses.
“Either we are confronted with a case of espionage and a senior security executive is protecting his source despite everything,” he said. “Or Renault is the victim of a manipulation, which we don’t know the nature of but which could be a fraud.”
Mr Pelata said he would propose reinstating the three executives — all of whom have said they have done nothing wrong and are suing Renault — and making good any injustice if “all the doubts are lifted”.
“When the inquiry is finished, we will accept all the consequences up to the highest level of the company, that is to say up to myself,” Mr Pelata said, adding that in either case the company was a “victim”.
March 4 – France faced the potential of severe political embarrassment on Friday after carmaker Renault RENA.PA threw doubt on the spying accusations that shook the company to its core and threatened a diplomatic spat with China. [ID:nLDE7230I7]
Here is what has happened so far in the espionage scandal which broke at the start of the year:
August 2010 – Renault’s compliance committee receives an anonymous “ethical alert” triggering an internal investigation.
October 2010 – Renault unveils the near street-ready version of its Zoe electric car, due for launch in 2012. Partner Nissan Motor Co 7201.T shows off its Leaf electric car which it will begin selling in multiple markets a few weeks later.
— Renault prepares to launch the Fluence and Kangoo electric vehicles and the Twizy two-seater electric city car.
Jan. 3, 2011 – Renault suspends three executives, including one member of its management committee. It later emerges that the three are Michel Balthazard, senior vice-president of advance engineering, his number two Bertrand Rochette and Matthieu Tenenbaum, deputy head of the electric vehicle programme.
The company says it plans legal action over alleged leaks of data, prompting a French official to warn of “economic war” and risks to French industry.
Jan. 4 – French Industry Minister Eric Besson visits the Renault Technocentre near Paris, the hub of the company’s electric vehicle programme.
Jan. 7 – French intelligence service the DCRI is looking into the case and a possible Chinese connection, a government source says.
Jan. 8 – Renault says an international network may have obtained data about the costs and economic model of its electric car programme but vital technology secrets — including 200 patents that are being lodged — are safe.
Jan. 11 – Speaking to journalists outside Renault’s headquarters following a meeting with management, Balthazard denies any wrongdoing.
— Tenenbaum’s lawyer says his client was accused on the basis of an anonymous letter which said he had received bribes.
— Rochette later tells RTL radio he is “amazed” at the accusations and had nothing to do with leaking information in return for bribes, as Renault alleged.
— China denies any link to industrial espionage, dismissing reports of its possible involvement as “baseless”.
Jan. 12 – France plays down the possibility of a link to China, saying it is not accusing any one country.
Jan. 13 – Renault sets the scene for a lengthy judicial process by lodging a complaint against “persons unknown” on counts of organised theft, aggravated breach of trust and passing intelligence to a foreign power, Paris prosecutor Jean-Claude Marin says.
— Renault says it has discovered serious misconduct detrimental to its “strategic, technological and intellectual assets”.
Jan. 14 – French state prosecutors launch an inquiry into industrial espionage at Renault.
— France’s DCRI has been charged with the investigation.
Jan. 19 – The three executives, now fired by Renault, say they plan to take legal action against the French carmaker.
Jan. 23 – Chief executive Carlos Ghosn says the suspected espionage appears to have been aimed at uncovering Renault’s investment model for its electric vehicles but declines to provide specifics of what proof Renault has of the espionage.
March 3 – Renault’s lawyer Jean Reinhart tells Europe 1 radio that the authorities were still investigating foreign bank accounts and dismisses media reports that the company had been tricked into believing it had been a victim of industrial espionage.
March 3 – Chief Operating Officer Patrick Pelata later tells newspaper Le Figaro in an interview that the company has some reasons for thinking it may have been tricked.
March 4 – Renault will “face consequences” after saying it might have been tricked into launching the investigation, says French Finance Minister Christine Lagarde. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For related Special Reports see:
http://link.reuters.com/pyc77r
http://r.reuters.com/gej38r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ (Compiled by David Cutler, London Editorial Reference unit in London and Helen Massy-Beresford in Paris; Editing by Greg Mahlich)
And that Level Global, which used to manage $4 billion, is closing.
But when you add it all up with the additional news from Pensions and Investments today that FrontPoint was hit with an additional $500 million in redemptions in the first quarter, the insider trading scandal has cost hedge funds a stunning ~$9 billion.
From PI:
Multistrategy hedge fund manager FrontPoint Partners, touched by a separate insider-trading investigation, received redemption requests for an additional $500 million for the first quarter, confirmed a source who asked not to be identified.
And that’s just three of the many hedge funds that have been tied to the investigation.
The insider trading scandal ended up costing three hedge funds, Diamondback, FrontPoint, and Level Global, a combined $9 billion.