Inside trading

Alleged inside trader is more than a "consultant" and ex-Goldman director

March 1, 2011: 12:17 PM ET

Rajat Gupta probably isn't smiling today

The SEC just announced that it is charging Rajat Gupta with insider trading, as part of the larger investigation that centers around hedge fund Galleon Management. In its press release, Gupta is referred to as "a Westport, Conn.-based business consultant who has served on the boards of directors at Goldman Sachs (GS) and Procter & Gamble (PG)."

All true, but Gupta is much more than that.

Gupta also serves as chairman and co-founder of New Silk Route, an India-focused private equity firm with $1.4 billion in capital under management. Its portfolio includes Cafe Coffee Day (a co-investment with KKR) and Reliance Telecom Infrastructure.

That last one was a co-investment with Galleon, and the two firms' ties run deep. Galleon founder Raj Rajaratnam was listed as a New Silk Route principal in a 2008 SEC filing, but later was removed from the company's website (perhaps around the same time that he was arrested for insider trading). Moreover, Dealbreaker reported last year that New Silk Route's original fundraising was for $2 billion (under the name Taj Capital) -- and that the first $600 million or so went into Galleon hedge funds.

Moreover, Gupta is not the only New Silk Route who knows his way around other insider trading investigations. Back in 2006, the SEC charged Victor Menezes with selling nearly $30 million of Citigroup (C) stock just before the company announced a giant quarterly loss related to the Argentinian debt crisis. Menezes, now a senior advisor to New Silk Route, was vice chairman of Citi at the time. He ultimately settled with the SEC for $2.7 million, without admitting or denying any wrongdoing.

Isn't it time for New Silk Route investors to demand some changes? Or for the firm to voluntarily disassociate itself with Gupta, as it did with Rajaratnam?

It's not as if today's charges are a surprise. There have been persistent rumors that Gupta would be charged with insider trading since last March, when he chose not to run for reelection to the Goldman board (one of the SEC charges are that he tipped off Rajaratnam that the bank was about to get a $5 billion investment from Berkshire Hathaway). But he has remained with New Silk Route, and the firm has steadfastly refused to comment on its ties to Galleon. Today, a call to firm spokeswoman Rupa Ranganathan went straight to voicemail, while CEO Parag Saxena was said to be traveling.

It's often said that private equity firms are hard to kill. But this one seems to be committing suicide.

UPDATE: It seems that New Silk Route recently hired an outside PR firm. Not that it's done much to change matters. "No comment" on the SEC charges, and "no comment" on whether or not Gupta remains on the New Silk Route payroll.

Also on Fortune.com

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.