On Wednesday, August 24, the SEC announced its latest result in its case relating to Galleon Management, this time obtaining a default judgment against Deep Shah, a former lodging industry analyst at Moody's. The Court entered a permanent injunction from future violations of Section 10(b) and Rules 10b-5, and disgorgement, prejudgment interest and civil penalty totaling over $34.5 million. The events involving Galleon Management, which had previously resulted in the criminal convictions of Raj Rajaratnam (discussed here) and Zvi Goffer (here), has also led to a number of settlements with the SEC.
While the east coast earthquake on Tuesday did have some impact on the SEC (as Broc Romanek pointed out in his post this morning on theCorporateCounsel.net blog, the SEC's EDGAR filing system was shut down as a result of earthquake) it did not stop Judge Jed Rakoff from approving the Shah judgment that day.
The Commission accused Mr. Shah of tipping Roomy Khan about the July 2007 acquisition of Hilton Hotels by the Blackstone Group and the March 2007 acquisition of Kronos Inc. by Hellman & Friedman. According to the Commission, Mr. Shah left Moody’s in late 2007 or early 2008, and he is believed to currently reside in India. Mr. Shah has failed to appear, answer or otherwise defend the Commission’s action. In addition to the permanent injunction from future violations, Judge Rakoff ordered Mr. Shah liable for: (a) disgorgement of $8,201,464.96; (b) prejudgment interest of $1,755,865.09; and (c) a civil penalty of $24,604,394.88.
While Mr. Shah may seek to avoid the SEC's judgment by staying in India, the other defendants who remained in the United States do not face a $34.5 million judgment. According to the SEC's Litigation Release, Mr. Khan has previously settled with the Commission, agreeing to pay $1,856,965.71 in disgorgement and interest (and may yet be required to pay an undetermined civil penalty). The Commission has also settled with ten other individuals and a company for injunctive relief and a combined $11 million in disgorgement, interest and penalties (although some defendants may owe a civil penalty in amounts to be determined in the future). This does not include Mr. Rajaratnam and others.
To date, the SEC has not announced whether it intends to pursue Rajat Gupta, one of the alleged participants in the Galleon insider trading ring. The SEC dismissed an administrative proceeding against him earlier this month, but reserved the right to file a suit in federal court against him (as discussed here).