A jury convicted Rajat Gupta, a former Goldman Sachs director, of conspiracy and three counts of securities fraud, loosely tied to the October 2011 insider trading conviction of Raj Rajaratnam, founder of the $7 billion Galleon hedge fund.
During Gupta's trial, FBI wiretaps revealed conversations between Rajaratnam, now serving a prison term, and Gupta discussing news of a confidential future investment of $50 billion to be made by Warren Buffet's Berkshire Hathaway Inc. in the Goldman Sachs fund. Moments after the call, and during an 11th hour trade, Rajaratnam purchased $50 billion in Goldman stocks, an investment with a personal gain of $1 million to Rajaratnam. Additional 2008 wiretaps uncovered conversations between the two insiders discussing unanticipated quarterly losses and the possible acquisition of Wachovia by Goldman Sachs. While Gupta was acquitted of two of the charges, he was ultimately found guilty of committing hedge fund fraud in the highest profile white-collar-crime trial, to date.
Hedge funds are minimally regulated vehicles of investment created for, and used by institutions and the highest net worth individuals, representing up to 50 percent of the daily trading on the New York Stock Exchange. Hedge fund investments are open-ended and typically liquid investments that include: equities, bonds, options, futures, commodities, arbitrage, and derivative contracts including real estate, most of which are not available to the public, unlike mutual funds.
Traditionally, the primary appeal in hedge fund investment has been the potential for profit during market volatility, due in part to the absence of administrative expenses, regulatory reporting and oversight. While hedge funds themselves are not illegal, they provide hedge fund managers with a vehicle that can easily be maneuvered into fraudulent activities.
As a result of the 2008 credit crisis, regulations have been passed in the United States and Europe to increase government oversight of hedge funds, resulting in perpetual convictions of some of corporate America's most prominent magnates.
Source: USA Today, "Former Goldman director convicted in insider trading case," June 15, 2012