Bloomberg News

Gupta Sued by Goldman Shareholder for ‘Short-Swing’ Profits

June 06, 2011

(Updates with Mercer demand letters in ninth paragraph.)

June 6 (Bloomberg) -- Ex-Goldman Sachs Group Inc. director Rajat Gupta was sued by a shareholder to recover “short-swing” profit on trades allegedly based on inside tips from Gupta that were made by Galleon Group LLC co-founder Raj Rajaratnam.

Investor James Mercer, in a complaint filed today in federal court in Manhattan, seeks to recover profit Galleon made from trading Goldman shares within a six-month period based on information from Gupta.

“Mr. Gupta was beneficial owner of these securities because he had a pecuniary interest in the profits generated by this trading activity,” Mercer, a resident of Kirkland, Washington, said in the complaint. “Mr. Rajaratnam undoubtedly paid Mr. Gupta for the Goldman Sachs inside information on which these trades were made.”

Mercer is seeking a judgment requiring Gupta to pay the short-swing profits from Galleon’s trading, from June to October of 2008. Mercer didn’t specify the amount he’s seeking in the suit.

“This lawsuit is completely without merit, and we will vigorously defend against it,” Gary Naftalis, a lawyer for Gupta, said in a statement.

In March, the U.S. Securities and Exchange Commission filed an administrative proceeding accusing Gupta of passing tips to Rajaratnam. Naftalis called those allegations totally baseless at the time.

‘Nothing Illegal’

“Mr. Gupta has done nothing illegal and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder,” Naftalis said in a statement responding to the SEC allegations. “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.”

Ed Canaday, a spokesman for Goldman Sachs, declined to comment today.

In his suit, Mercer claimed he sent three letters to Goldman Sachs, informing it of the allegations against Gupta and demanding that the firm sue its former director. He filed his suit after Goldman Sachs didn’t respond to the letters, he said.

The SEC claims Gupta passed Rajaratnam information in 2008 about Berkshire Hathaway Inc.’s $5 billion investment in the firm and details of quarterly earnings at Goldman Sachs and Procter & Gamble Co., where Gupta was also a board member. The commission said the tips generated more than $18 million.

Gupta, who hasn’t been charged criminally, was mentioned many times in the Manhattan trial of Rajaratnam, which ended May 11 with his conviction on all 14 criminal counts against him.

Lloyd Blankfein, the chief executive officer of Goldman Sachs, testified in the Rajaratnam trial that Gupta had violated the company’s confidentiality policies by allegedly passing the information to Rajaratnam. Gupta was also heard on recordings of wiretapped conversations with Rajaratnam that were introduced in the trial.

The case is Mercer v. Gupta, 11-cv-03828, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Peter Blumberg, Glenn Holdcraft

To contact the reporter on this story: Bob Van Voris in Manhattan federal court at

To contact the editor responsible for this story: Michael Hytha at

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