Wednesday, March 2, 2011

Insider trading between Rajat and Raj - you really can't make this stuff up

Sometimes news comes along that is so out of line I would believe it was fiction unless I saw it with my own eyes - you just could not make this stuff up!

Today Rajat Gupta - a highly respected former McKinsey senior partner and former board member at both Goldman Sachs and Proctor and Gamble was charged by the SEC with insider trading. What is astonishing about this charge is the SEC's press release reads like a soap opera.

For example - Rajat is on a Goldman Sachs board call discussing clearly material events (Berkshire Hathaway's investment in Goldman), within one minute of the end of the call he calls Raj. With minutes to go until the market closes, Raj buys 175,000 shares of Goldman, which he then sells the next day after the news is public.

Seriously! A Hollywood script writer could not have made this stuff up and been credible. Thanks to Business Insider for the minute-by-minute analysis of the calls placed between Rajat and Raj and the subsequent trading by Raj's firm Galleon. It happened more than once!

I won't take a position on whether Rajat is guilty or not - in the US he is innocent until proven guilty - but the optics are terrible whether they were talking about business tips or cooking recipes. And as a board member you are wise pay attention to both substance and optics because it is so easy to be misunderstood with 20-20 hindsight.

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