Explained: Why two IITians are charged in a US insider trading case

In late July this year, several Indian-origin people in the US were charged with committing financial crimes in separate cases. Among them was Brijesh Goel (37), a former Goldman Sachs Group Inc. vice president and banker, who was arrested on July 24 for allegedly participating in an insider trading scheme with his close friend, Akshay Niranjan (33). Between 2017 and 2018, Goel tipped Niranjan on at least seven deals that resulted in approximately $290,000 in illegal profits, according to federal prosecutors.

Goel has been charged with four counts of securities fraud and one count of obstruction of justice, each carrying a maximum term of 20 years in prison. He has been charged with conspiracy to commit securities fraud and tender offer fraud as well, carrying a maximum term of five years in prison. He is currently out on a $1 million bond, and cannot travel beyond New York and northern California, reported Bloomberg. What is the case against them that led to charges by a US government agency?

Insider trading and manipulation

While working at Goldman Sachs, Goel regularly received material nonpublic information (MNPI) about corporate merger and acquisition transactions, as well as potential public offerings in which his investment bank was acting as a financial adviser. Considered to be inside information, MNPI remains undisclosed to the general public because its release could affect the market value or trading price of the issuer’s securities or stocks.

From February 2017 onwards, Goel misappropriated confidential information from strictly internal emails and gave Niranjan, who was employed at Barclays Bank Plc, the names of the potential target companies. Niranjan then used that MNPI to trade call options, which are financial contracts that give the option buyer the right but not obligation to buy or sell certain stocks. The indictment against the two states that these call options would become profitable if the price of a company, that was targeted for acquisition, increased.

These included stocks of companies like Lumos Networks Corp., Patheon N.V., PharMerica Corporation, and Calgon Carbon Corporation, according to the indictment. Niranjan placed the trades in a personal brokerage account held in his brother’s name. After their acquisitions were publicly announced, Niranjan sold, exercised or assigned the options in the account. Niranjan and Goel then divided the profits netted from the insider trading scheme.

A close friendship

Both Goel and Niranjan had been students at different campuses of the Indian Institute of Technology (IIT) before they met at the University of California’s Berkeley Haas School of Business in 2012, where they completed their master’s degrees, reported Bloomberg. After graduating in 2013, they both moved to New York to pursue lucrative careers in finance.

Goel joined Goldman Sachs and rose to the ranks of vice president, while Niranjan did interest-rates structuring and foreign-exchange trading at Barclays bank. For a while, they lived in the same luxury high-rise building in Manhattan, travelled overseas together and played squash together at local clubs.

It was at the squash court that Goel and Niranjan would typically share confidential information. According to the indictment, Goel would text his friend “Did you book the court,” a coded way of asking if Niranjan had purchased the stocks they had discussed.

Niranjan moved to London in June 2018 and began working at a proprietary trading firm. The two continued to be friends and in August 2021 they exchanged written communications about a loan Niranjan was supposed to make to Goel. “There was no loan, and in fact, the payment represented profits from the trading scheme,” the prosecutors stated. The next month, Niranjan sent Goel $85,000 via wire transfer – the proceeds from the scheme they had plotted.

The attempted cover-up

The authorities had begun to catch up with them, as the U.S. Securities and Exchange Commission’s (SEC) Market Abuse (MAU) Analysis and Detection detected suspicious trading patterns.

Court documents state that on May 23, 2022, Goel met Niranjan in New York in person, and told him that FBI agents had approached him and questioned him about insider trading. Goel reportedly told Niranjan he had deleted certain text messages between them and suggested that Niranjan follow suit.

On June 3, the two met again. Their close friendship culminated cinematically, as little did Goel know that Niranjan was secretly recording the conversation as demanded by federal prosecutors, perhaps to receive a lower sentence or immunity. During the meeting, Goel reportedly told Niranjan that their narratives should match so there would “not be a break in the story.”

The two met again soon, where Niraranjan recorded the two discussing plans to delete evidence about insider trading. The government documents reveal that Goel asked to see his friend’s text messages to him from 2017 onwards, and instructed him to delete some. “F—… This we need to delete,” Goel reportedly said to Niranjan about a text message containing evidence of their scheme. “Did we put on any trade?… It has to be deleted”, he said. Other than the charges of security fraud, Goel has also been charged with obstruction of justice for deleting the messages and asking Niranjan to destroy evidence.

Cases such as these suggest that insider trading and other kinds of white-collar crime continue to flourish in the moneyed and enticing fields of investment and banking firms. “If everyday investors think that the market is rigged at their expense in favour of insiders who abuse their positions, they are not going to invest their hard-earned money in the markets,” said Gurbir S Grewal, Director of the SEC’s Enforcement Division, after nine people in the US were charged with insider trading in separate cases on July 25.

“But as today’s actions show, we stand ready to leverage all of our expertise and tools to root out misconduct and to hold bad actors accountable no matter the industry or profession. That’s what’s required to restore investor trust and confidence”, he said.