DealBook: When Galleon, spotlight on Rajat Gupta

In the entire Raj Rajaratnam randomised trial, the jury, as soon as Monday could go, it has an elephant in the courtroom: Rajat k. Gupta.

Mr Gupta, once one which most respected businessmen, is not here the world attempting to still it has criminally been charged. But hardly a day if it is the jury in Mr. Rajaratnam study - the Government has largest insider trading case in a generation - Mr. Gupta, the former head of McKinsey & consultancy company not heard.

A wiretap on which Mr tells Gupta, a former Director at Goldman Sachs, Mr. Rajaratnam, the Galleon group hedge fund ran, the Bank of secret Board judges heard discussions.

Alessandro Della Bella/Keystone, via associated press Rajat k. Gupta, a co-conspirator is excellent.

You heard a tape of Mr Rajaratnam boasting to a colleague, that Goldman Director him on the Bank's earnings over a public announcement of typed had. In another recorded call Mr. Rajaratnam said its agents, that he had received word, the somewhat good idea was to happen at Goldman.

Public prosecutors was also telephone bills, as well as trading records, that Mr. Rajaratnam soon after his phone calls with Mr Gupta Goldman shares traded.

Mr Gupta still is mentioned in the Government not accusation against Mr Rajaratnam. The United States attorney's Office in Manhattan, the Mr Gupta role in the case for at least three years was investigated, appointed a co-conspirator of Mr. Rajaratnam but has not paid him him criminally.

Instead, federal prosecutors of their formal charges against Mr Rajaratnam have built around five cooperating witnesses guilty involvement in insider trading conspiracies with the defendant pleaded have.

Legal experts say there are too many reasons for prosecutors conducting a criminal investigation accuse some co-conspirators during the loading process others do not.

"What drives the strength of the evidence against each individual co-conspirators and tactical considerations, these decisions", said Anthony M. Sabino, law professor at St. John's University.

There was no indication that Mr Gupta in Mr. Rajaratnam case in the months before the study would play no role. But the beginning of March, one week before selection jury, the Securities and Exchange Commission shockwaves through corporate America sent, if there is a civil administrative proceedings against Mr Gupta filed. The Agency accused him leaking Board meetings to Mr. Rajaratnam of Goldman and Procter & gamble, serving also as Director to resign last month.

"The S.E.C. completely unfounded claims", said Gary p. Naftali's, Mr. Gupta lawyer, at the time. "Mr Gupta 40-year record is ethical behavior, to guard integrity and commitment to its customers trust unconditional."

Mr. Gupta, an Indian of Kolkata and graduated from the Harvard Business School, is the most famous Executive ensnared by far reaching the Government investigation into insider dealing with hedge funds. From grace his sudden case has stunned the business world.

As global managing director of McKinsey, Mr. Gupta, 62, was a trusted advisor to Chief executives including Jeffrey R. Immelt of General Electric and Henry R. Kravis of private-equity firm Kohlberg of Kravis Roberts. A prominent philanthropist, he was a senior advisory on the Bill & Melinda Gates Foundation.

While the last decade it rose close to Mr. Rajaratnam, a major financial supporter of the Indian School of business, highly regarded graduate school, Mr. Gupta contributed to starting. At the time of his retirement by McKinsey in 2007, he went into business with Mr. Rajaratnam, a private equity company was founded. Mr investment Gupta also with Mr Rajaratnam.

It was during this time a nine month stretch in 2008, that the Government of Mr. Rajaratnam wiretapped phone. Have these recordings helped to bring the Government charges against 26 persons, 20 of them pleaded guilty.

Federal prosecutors seem weaker evidence against Mr Gupta as against some of Mr. Rajaratnam other co-conspirators have. Outsourcing tips with Mr. Rajaratnam, for example, two cooperating witness - Anil Kumar and Rajiv Goel - several wiretaps can be heard.

Mr. of Gupta's case played federal prosecutors only a wiretap on the Mr Gupta Goldman passed, Board meetings to Mr. Rajaratnam. A call of July 2008, Mr Gupta Mr Rajaratnam said that the Bank Board was a purchase of Wachovia or the American international group.

Prosecutors not evidence, but present, traded the Mr. Rajaratnam on this tip.

Prosecutors also prevent certain rules could be used against Mr Gupta two of the most onerous eavesdropping during the process played, legal experts say.

In a call, Mr. Rajaratnam, a colleague, says "yesterday I heard from someone who on the Board of Goldman Sachs, they are going, losing $2 per share." In the other, Mr. Rajaratnam says its agents, "I have a conversation said that something good happen Goldman."

Because these conversations between Mr. Rajaratnam and his team have been, a judge could they evidence, declare inadmissible hearsay that is, it also indirect or speculative against Mr Gupta used.

But prosecutors could try the talks against Mr Gupta under the co-conspirators exception to the rule referred to use hearsay. The theory is that Mr. Rajaratnam suspected the statements about Goldman to promote conspiracy between Mr. Rajaratnam and Mr Gupta have been made.

Without these two statements by Mr Rajaratnam on tips of Goldman, prosecutors were obliged to evidence such as telephone bills and trading records, Mr guilt produce leave Gupta.

In the S.E.C. civil proceedings, the Agency has to do a lower burden of proof as federal prosecutors in a criminal action. A S.E.C. administrative judges not hearsay is subject to rules.

An unusual twist Mr Gupta S.E.C. sued last month, dissenting, that an administrative proceeding by a jury in wrong Federal Court had excluded him. Mr Gupta had more protection is in one administrative procedures, including the right to check proof of S.E.C.. Judge has still not ruled on the question.

If the S.E.C. There is, a judge could fines Mr Gupta and bar him impose of as an officer or Director of a company.

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DealBook: Goldman Sachs slow growth raises concern on Wall Street

Pankaj Nangia/Bloomberg paid Goldman Sachs news from a lifeline by Warren E. Buffett company, Berkshire Hathaway.

Goldman Sachs gave investors a look at the new normal on Wall Street - and many are concerned.

In some ways of Goldman latest results looked good.

On Tuesday the Bank results reported in the first quarter of $1.56 a share, nearly double analysts expectations. Some divisions such as investment banking and investment management showed improvement. And the expensive lifeline by Warren E. Buffett holding company, Berkshire Hathaway, the Bank paid Goldman last important temple from the financial crisis.

But strong on the difficulties of an investment bank in the postcrisis world focused investors instead on Goldman slow growth, offered.

In the trade and the rest of institutional client services, once the hallmark of the company's operations, sales fell by 22 percent, to $6.7 billion. Total profit fell in the first quarter by 21 percent, to 2.74 billion $ of $3.5 billion, including the unique hit from the repayment of Berkshire. Revenue fell to $11.9 billion of 12.8 billion US $. And the return on equity, a key measure of profitability, is heavily on a few years ago.

"Everyone is saying this sector dead money, is," said Roger Freeman, analyst at Barclays Capital. "I hear it over and over and Goldman is one, the".

Investors noted. The Goldman broke shares on Tuesday, drop by up to 3 percent, to $151.86, to 1.3 per cent. The stock is from almost 10 percent for the year.

It is as Goldman Sachs and the rest of Wall Street eliminated the earnings situation will be given the new mandate to take advantage of and hang up temper to more capital. The threat of the new financial regulation makes only an uncertain Outlook. Investment banks, and its shareholders have felt no clear, as the rules will have a business at a time when economic growth is already slow.

Goldman, which more than most companies born out of the crisis, is gesattelt not with many of the same problems as his rival. Bank of America still the lazy legal consequences struggle under the weight loans and mounting. Morgan Stanley pays 2008 for an investment by the Japanese Bank of Mitsubishi UFJ financial group, a business that will cost the company $900 million per year.

The company struck a note of optimism in terms of the quarter despite lackluster results. On a conference call with analysts, executives said that client activity had increased, even in the midst of further economic interests.

"We are pleased with our first quarter," Chief Executive said Lloyd C. Blankfein, in a statement. "In general improvement of the market and economic conditions, coupled with our strong client franchise, solid results produced." "Looking ahead, we continue to see indications of economic activity throughout the world promote."

Still, investors are nervous about Goldman prospects. Many big names have actively their exposure, been reduced including the Wellington management, based in Boston. It sold over a million shares in Goldman end of 2010, according to filings. Wellington refused to comment.

A concern is that Goldman-return on equity deterioration of. In the first quarter, Goldman Sachs return on equity was 12.2 per cent. It was 20.1 per cent a year and 38 percent at the beginning of 2009.

"" Most investors have only one question: "what is the return on equity go to?" ", said Mr Freeman of Barclays.""Is not clear the response, in the light of the uncertain regulatory environment."

The current return on equity is also far below Goldman the stated goal of 20 percent-a level, which closely to the company tracks the average since its initial public offering in 1999. But the company is not ready, review your goal down, was until it less "unknown variables are" close around its operating model, according to a person to the company that has not authorized to speak publicly about the matter.

Although analysts are confident, that is Goldman finally can increase over the course of time, it will be a hard slog in the near future.

Return on equity is the amount of money that delivers a company on each share. So if the total investor base is growing, Goldman must produce even higher yields to keep are the same. Currently, Goldman sits on $64 billion of shareholders shareholder equity, up from 46.6 billion US $ at the end of 2008, which means that it must work harder to generate the same return on equity.

To improve the gives the company could issue a number of one-time dividends or share buy-backs to reduce the capital. But that would be a tricky move right now. Regulators were to buy back large quantities of material, because they should have sufficient capital of an economic shock to let companies like Goldman. Also, to bucks Goldman capital let go until it knows what regulatory changes.

In the meantime, the company has not the same opportunities to increase profits. Before Goldman could increase profits up its leverage effect, ratchet wrench relying on borrowed money. With pressure from regulators, wet risk leverage ratio to 12.9 per cent dropped the company's gross at the end of the quarter, from 27.9 per cent at the beginning of the year 2008.

Mr Freeman said "until now, they were bound working with two hands behind the back". "Now they have only one hand, and it's still not easy."

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DealBook: Buffett of Deputy baffles some experts dealing with the

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Mustafa Quraishi/Associated PressWarren E. Buffett’s carefully cultivated image risks being tarnished.

Warren E. Buffett is an old-school capitalist with a rock star’s aura, a global celebrity who is revered like a small-town hero.

Yet that carefully cultivated image — the envy of nearly every top executive — risks being tarnished by a disclosure that he knew one of his right-hand executives had bought shares in a company before Mr. Buffett’s company announced a deal for it.

Mr. Buffett is certainly not the typical chief executive, and the questions surrounding him concern an apparent failure to act that had corporate governance experts and analysts scratching their heads on Thursday. The scrutiny stems from a meeting in January, when the deputy, David L. Sokol, approached Mr. Buffett about possibly buying a specialty chemicals manufacturer. During the discussion, Mr. Sokol, once seen as a potential successor to Mr. Buffett, made a brief admission to his boss: he owned stock in the takeover target.

At that point, most corporate chieftains would have asked questions, directed the executive to seek legal advice or even put the idea of a deal on ice, experts said. But Mr. Buffett did none of those things — even though his company, Berkshire Hathaway, like most large companies, has policies that restrict employees from using or sharing confidential information for “stock trading purposes.”

“It just seems odd to me that it didn’t throw up some red flags,” said Greggory Warren, a senior stock analyst at Morningstar. “As much as they don’t like to have their hands in what managers are doing, there are occasions like this where they have to.”

Mr. Buffett assumed that Mr. Sokol had held the stock for years, not days, which would make the timing of the deal less suspicious. “It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings,” Mr. Buffett said in a statement on Wednesday announcing Mr. Sokol’s resignation. Mr. Buffett did not respond to requests for comment on Thursday.

In the wake of the disclosure, Berkshire Hathaway shareholders, analysts and corporate governance experts called for tighter controls at Berkshire. They questioned Mr. Buffett’s trusting manner, saying he should have pushed Mr. Sokol to disclose the extent of his stake in Lubrizol, the chemicals maker. Morningstar analysts said in a report on Thursday that Mr. Sokol’s Lubrizol trades “tarnish Berkshire’s reputation.”

Mr. Sokol acquired a roughly $10 million personal stake in Lubrizol in January, just days before he pitched a takeover of the company to Mr. Buffett. Berkshire agreed in March to buy Lubrizol for $9 billion, earning Mr. Sokol an estimated $3 million profit.

Thomas Russo, a partner at investment firm Gardner Russo & Gardner, which owns Berkshire shares valued at some $300 million, said the episode would probably prove to be a wake-up call for the Omaha-based Berkshire.

“They will likely have to introduce slightly more controls to eliminate the headline risk we have seen,” he said. “That is a good thing, especially as the operations of Berkshire fall into more hands.”

But Berkshire has made no indication that it plans to overhaul its conflict of interest policy or tweak its internal controls.

Even so, the questions about Mr. Sokol’s stock ownership already has the company on the defensive.

“Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Mr. Buffett said in the statement.

Charles T. Munger, Berkshire’s vice chairman and Mr. Buffett’s longtime business partner, also expressed support for Mr. Sokol.

“Few people understand how good he is, how really good he is,” Mr. Munger said in an interview. “He’s like a guy on a baseball team that could play six of the nine positions.”

Still, in a company with a culture that has long emphasized ethics, the news about Mr. Sokol’s trades may cause waves within Berkshire. In a July 2010 letter, Mr. Buffett instructed his managers to “zealously guard Berkshire’s reputation.”

“We can afford to lose money — even a lot of money,” Mr. Buffett said. “But we can’t afford to lose reputation — even a shred of reputation.”

Berkshire’s conflict of interest policy requires all directors, chief executives and chief financial officers to “disclose any material transaction or relationship that reasonably could be expected to give rise to such a conflict to the chairman of the company’s audit committee.”

The company also circulates a list of stocks that executives are not allowed to buy.

“I don’t think I did anything inappropriate,” Mr. Sokol told CNBC on Thursday. “I bought stock in a company that I thought was a good company.”

The departure of Mr. Sokol also calls into question the future of the company’s management team, shuffling the cast of Berkshire executives who could succeed Mr. Buffett as chief.

Although Berkshire has built up a fairly deep bench in recent years, Mr. Sokol was seen as the front-runner.

Jay Gelb, an analyst with Barclays Capital, called Mr. Sokol’s resignation an “unfavorable development” for the company’s stock, which was down more than 2 percent on Thursday. “Mr. Buffett may be the only one who can manage the company with as much success as in the past,” Mr. Gelb said in a report.

Some rising stars at Berkshire might also hesitate to assume the burden of filling Mr. Buffett’s shoes. Other protégées, analysts say, might be lured away by bigger paydays at hedge funds and the like.

Of course, Berkshire pays well, too. Mr. Sokol earned roughly $24 million over the last three years as chairman of MidAmerican Energy, a Berkshire subsidiary.

Mr. Buffett, 80, has said he has no immediate plans to retire. Yet the contest to replace him has been among the most watched succession races in corporate history. In a February regulatory filing, Berkshire said its board had identified four Berkshire subsidiary managers who were capable of being chief executive. With Mr. Sokol’s departure, it is now down to three.

Mr. Buffett wants to split his role into a few positions: a chief executive spot and two or more top managers who will run Berkshire’s $158 billion investment portfolio. The leading candidate for one of the investment jobs is the company’s current chief investment officer, Todd Combs, a former hedge fund manager.

As for the chief executive spot, the new favorite is Ajit Jain, who runs Berkshire’s reinsurance operations. Mr. Jain joined Berkshire in the 1980s, after stints at I.B.M. and McKinsey & Company. Mr. Buffett has been quick on past occasions to heap praise on Mr. Jain.

Also in the mix are Tad Montross of General Re, Matthew Rose at Burlington Northern Santa Fe, Tony Nicely of Geico and Greg Abel, chief executive of MidAmerican.

The managers are hardly under the thumb of Mr. Buffett, who keeps in touch with his deputies but is famous for writing them a letter every two years.

“At Berkshire, managers can focus on running their businesses; they are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment,” Mr. Buffett has said. The managers can “call me when they wish.”

That hands-off approach, however, may face pressure to change in the wake of Mr. Sokol’s resignation.

Mr. Sokol, before mentioning a potential bid for Lubrizol to Mr. Buffett, had bought 2,300 shares of the company, which he then sold a week later. Mr. Sokol accumulated another 96,060 Lubrizol shares, then worth nearly $10 million, on Jan. 5, 6 and 7.

When Mr. Sokol brought the idea to takeover Lubrizol to Mr. Buffett on or around Jan. 14, he mentioned his stake in the company. But it was not until an unspecified day in mid-March, shortly after the deal was announced on March 14, that Mr. Buffett learned the extent of Mr. Sokol’s investment in Lubrizol. The news came not from Mr. Sokol, but Marc Hamburg, senior vice president and chief financial officer at Berkshire.

Some corporate governance experts said Mr. Buffett should have pushed for more details.

‘You would expect the people at Berkshire to discuss this explicitly,” said David F. Larcker, an accounting professor and director of the Corporate Governance Research Program at Stanford’s graduate business school. Still, he added that Berkshire should not abandon its “culture of trust” in favor of “endless rules.”

“When you’re doing a lot of transactions, every once in a while something is going to be unusual.”

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DealBook: Nasdaq and ice make bid for NYSE Euronext

Under the terms of the transaction would ICE would carve out NYSE derivatives unit and Nadasq the remaining companies.

NASDAQ OMX and IntercontinentalExchange on Friday offers a hostile game for NYSE Euronext, $42.50 in cash and shares made - in the offer, which was valued at $11.3 billion.

The joint proposal by the two partners fit an offer from Deutsche B?rse to 19 percent and a 27 percent premium on the NYSE share price represents, before the German stock exchange deal was announced in early February.

Under the terms of the transaction would ICE would carve out NYSE derivatives unit and Nadasq the remaining companies, including the stock trading and options in the United States. For each share they NYSE have investors $14,24 in cash, plus 0.4069 shares of NASDAQ and ICE 0.1436 shares would receive.

"Our industry is, a period of historical change", said Robert Greifeld, Chief Executive of NASDAQ, in a statement. "The combination of the two leading US listed offers the possibility to create a global exchange platform which benefit the scale and the growth of potential investors, issuers and other market participants has." "We believe would to increase transparency and liquidity in U.S. markets and to obtain employment as a new corporate capital."

American stock markets lost ground in recent years to international competitors. In 2010, which accounted for United States only 16 percent of the capital around the world raised according to ICE represents. And only one of the 10 largest initial public offerings, the one for General landed domestic Exchange engine.

The transaction would help, NASDAQ more effectively compete in a changing global market, one which always depending on the size and scale. Cash equities business would among the world's largest players in the stock trading NASDAQ with the addition of the NYSE.

But the deal faces significant obstacles. During the bar, rivals long already high for hostile takeovers, NASDAQ and NYSE - and his is unclear how the two could work together. Still Deutsche B?rse has made it clear how it will respond to the counterproposal.

Each transaction could take its toll on NASDAQ finances. The company has nearly $2.2 billion in long-term debt.

NASDAQ and ice would finance financing business through existing cash on the books and $ 3.8 billion. The company she said commitments from several companies, including the Bank of America and Wells Fargo had received.

Bank of America Merrill Lynch and Evercore group NASDAQ with Shearman & Sterling provides legal counsel for this transaction on the deal, consulting. Lazard, Broadhaven capital work with ice partners and BMO Capital markets, while Sullivan & Cromwell is the company from legal point of view, represents.

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