A U.S. investigation of possible insider-trading by Goldman Sachs Group Inc. employees expanded to include a managing director whose name emerged at the trial of convicted hedge fund manager Raj Rajaratnam, a person with knowledge of the probe said.
David Loeb, who works on Asia equity sales in New York and focuses on Taiwan, is a subject in the criminal investigation, said the person, who declined to be identified because the matter isn’t public. Loeb is the second Goldman Sachs employee said to be under federal scrutiny. Last month, Henry King, an analyst covering Taiwan, was identified as under investigation by the FBI, a person familiar with the case said.
Goldman Sachs said in a Feb. 28 regulatory filing that “from time to time, the firm and its employees are the subject of or otherwise involved in regulatory investigations relating to insider trading, the potential misuse of material nonpublic information and the effectiveness of the firm’s insider trading controls and information barriers.”
The bank said in the filing that it was “fully cooperating” with any such investigations.
The probe of both men comes as U.S. authorities have extended the reach of their five-year insider trading probe from hedge funds, consultants and technology firms in the U.S. to bank executives in the U.S. and Asia.
Since 2009, insider-trading and securities fraud charges have been filed against 64 people in the investigation, called “Perfect Hedge.” To date, 59 people have either pleaded guilty or been convicted at trial. They include Galleon Group LLC co- founder Rajaratnam, who is serving an 11-year prison term.
The law enforcement effort is being conducted by the FBI in New York and the office of U.S. Attorney Preet Bharara in Manhattan. Loeb didn’t return calls or e-mails seeking comment yesterday. Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment. Peter Donald, a spokesman for the Federal Bureau of Investigation in New York, declined to comment.
Jerika Richardson, a spokeswoman for Bharara, said it is the office’s policy to neither confirm nor deny if Loeb is the subject of any inquiry.
During Rajaratnam’s trial, the fund manager’s defense lawyers showed jurors a page from the July 2008 calendar of former Galleon president Richard “Rick” Schutte, showing he and Rajaratnam had a two-hour lunch with Goldman Sachs President Gary Cohn and Loeb.
In October, the U.S. charged Rajaratnam’s friend Rajat Gupta, a former Goldman Sachs and Procter & Gamble Co. director, with insider trading. The government said he leaked nonpublic information to Rajaratnam. Gupta, who has denied wrongdoing, is scheduled for trial in May.
Prosecutors in the case said in a Feb. 3 letter to U.S. District Judge Jed Rakoff, who is presiding over Gupta’s case in Manhattan, that statements from witnesses described a second “insider” at Goldman Sachs other than Gupta who allegedly leaked tips to Rajaratnam. They said those tips “did not relate to Goldman and/or Procter & Gamble.”
Prosecutors didn’t disclose which stocks the second unidentified tipper, whom Rakoff called “Mr. X,” had allegedly disclosed to Rajaratnam.
Gupta’s lawyer, Gary Naftalis, declined to comment. Naftalis has argued that he should be permitted to use such information about other Goldman Sachs leaks in his defense of Gupta.
As part of a related suit filed by the U.S. Securities and Exchange Commission against Gupta, Gupta’s lawyers sought to question Loeb under oath as well as Goldman Sachs Chief Executive Officer Lloyd Blankfein and other Goldman executives including Chief Financial Officer David Viniar, Cohn and John Bryan.
In November, Rakoff ruled that Blankfein may be questioned before Gupta’s criminal trial begins. He said depositions of other Goldman Sachs officers must be conducted after the trial.
The Wall Street Journal reported the probe of Loeb earlier.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
© Copyright 2016 Bloomberg News. All rights reserved.