By Frank James
Goldman Sachs' public-relations problems continue. The Wall Street Journal reports that a Goldman director has been tied to an insider-trading scandal.
The WSJ reports that the director told indicted hedge-fund manager Raj Rajaratnam about a $5 billion investment famed investor Warren Buffet made in the investment bank in 2008 before that information was made public. Rajaratnam has been charged with trading on insider information.
An excerpt from the WSJ:
A Goldman Sachs Group Inc. director tipped off a hedge-fund billionaire about a $5 billion investment in Goldman by Warren Buffett's Berkshire Hathaway Inc. before a public announcement of the deal at the height of the 2008 financial crisis, a person close to the situation says.
The revelation marks a significant turn in the government's case against Raj Rajaratnam, the hedge-fund titan at the center of the largest insider-trading case in a generation. Mr. Buffett's investment in Goldman in September 2008 was a watershed moment in the financial crisis. One of the world's savviest investors, Mr. Buffett helped allay fears about the instability of the financial system by backing America's leading investment bank.
The new disclosure stems from a government examination into whether the Goldman director, Rajat Gupta, gave inside information to Mr. Rajaratnam. In a court filing March 22, the government alleged that Mr. Rajaratnam or "co-conspirators" traded on non-public information about Goldman. In a filing last week, the government provided more details about the information it alleges Mr. Rajaratnam received, including advance notice about the Buffett transaction with Goldman.
That information came from Mr. Gupta, a person familiar with the matter says. Federal prosecutors notified Mr. Gupta in a letter that they had intercepted phone conversations between him and Mr. Rajaratnam. Mr. Gupta told Goldman last month he wouldn't seek re-election as a director.
Coming as it does on the heels of the Securities and Exchange Commission's fraud lawsuit against Goldman, the bad publicity just keeps growing for the investment bank.
The good news for Goldman, however, is that it's still making eye-popping profits, announcing this week that it's first quarter profit nearly doubled to $3 billion. So that probably assuages some of the negative media it's getting.