Twitter Inc. has acknowledged that after mobile users tap the "Find friends" feature on its smartphone app, the company downloads users' entire address book, including email addresses and phone numbers, and keeps the data on its servers for 18 months. The company also said it plans to update its apps to clarify that user contacts are being transmitted and stored.
The company's current privacy policy does not explicitly disclose that Twitter downloads and stores user address books.
It does say that
"Twitter users may customize your account with information such as a cellphone number for the delivery of SMS messages or your address book so that we can help you find Twitter users you know."
As with many online social services, Twitter allows users to look for friends that are also registered users. In the case of Twitter's iPhone app, users see a screen noting that the service will "Scan your Contacts for people you already know on Twitter." The short description of the feature does not mention that it also downloads every entry in the address book and stores it.
Twitter's current privacy policy notes that some categories of "Log Data" are stored for up to 18 months.
The policy says.
"Log Data may include information such as your IP address, browser type, the referring domain, pages visited, your mobile carrier, device and application IDs, and search terms. Other actions, such as interactions with our website, applications and advertisements, may also be included in Log Data."
In response to questions about the process, Twitter spokeswoman Carolyn Penner said the company is planning an update to the language they use in the mobile app.
Penner wrote in an email.
"We want to be clear and transparent in our communications with users. Along those lines, in our next app updates, which are coming soon, we are updating the language associated with Find Friends -- to be more explicit. In place of 'Scan your contacts,' we will use 'Upload your contacts.' and 'Import your contacts' (in Twitter for iPhone and Twitter for Android, respectively)."\
Penner also noted that Twitter users can have the service remove their contact databases using the "remove" link on this Twitter webpage (see below).
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The disclosure from Twitter comes after another online social service, Path, came under fire last week for automatically downloading iPhone users' address books without permission. The chief executive of Path, Dave Morin, apologized for the automatic download and said Path would correct it, but also mentioned that such processes were "industry best practice."
Updated February 15th, 12:51 p.m. Twitter has clarified that it does not store names from address books, only email addresses and phone numbers. The company initially told the Times that names were among the types of data it gathered from users'mobile contacts lists.
When users activate the service's "Find friends" feature, "the email addresses and phone numbers in your address book will be shared with Twitter," wrote Carolyn Penner, Twitter's spokesperson. "Later, if one of your contacts signs up for Twitter with one of those email addresses and chooses to be discoverable by the address, we can connect you two."
COMMENTARY: I used Twitter's app for several years, so this privacy violation by Twitter is like a kick to my groin. In a blog post dated March 31, 2011, I reported on Twitter and Google both placed on 20-year probation with privacy audits by the FTC for privacy violations. In a blog post dated November 30, 2011, I reported on Facebook being put on a 20-year probation with annual privacy audits. You would think that during all this time, Twitter would've come clean, and admitted that it was downloading our entire address book. Now Twitter clarified that it "does not store names from address books, only email addresses and phone numbers." Thanks for making me feel a bit better about this privacy violation. cough, cough.
What is really eye-opening is Path's CEO Dave Morin mentioning that such processes (downloading address book data) were "industry best practice." I think it is time that Twitter and Path users report these gross privacy violations to the Federal Trade Commission for further investigation. Makes you wonder, what other tidbits of information about their users social networks are helping themselves to, without our permission.
Protecting your online privacy is of the utmost importance. In today’s connected world, it is far too easy to lose your privacy to the hands of many unscrupulous individuals. What can you do if you have discovered that your privacy has been violated by your favorite social network?
Your privacy rights are addressed with two acts: the 1974 Privacy Act and the Computer Fraud and Abuse Act of 1984. There are also many agencies that handle the enforcement of Internet privacy laws, including the FTC (Federal Trade Commission).
Protect yourself from privacy violations by thoroughly reading any and all privacy policies for any website entities you want to do business with. Do not, in any case provide private information, if you think that website may use your information fraudulently. Make sure you feel secure prior to any financial transactions.
You have 180 days to report these violations under a general statute of limitations. Your individual state may also have other rules and regulations for reporting these violations .
Use the FTC’s online form to file a complaint located HERE. You can report cases of unwanted spyware installations, online shopping fraud and internet auction complaints using this process.
You can try to contact the disputed company directly to try resolving the issue prior to filing a formal complaint. If this fails, file the FTC report and be sure to attach any and all documentation, including prior attempts at resolution.
Courtesy of an article dated February 14, 2012 appearing in the Los Angeles Times
The remarkable infographic of the Social Network of the Mexican Drug Cartel teaches volumes about how fear works, and why the notorious Michoacan drug family is so unstoppable.
This is surely one of the most remarkable infographics ever posted. Created by social scientist Eduardo Salcedo-Albarán, it documents the organizational structure and almost limitless influence of Mexico's Michoacan drug family. And it teaches you a great deal about why, exactly, the family is so hard to combat -- and why its power seems so pervasive.
The infographic itself details various wings of the Michoacan cartel -- or La Familia as it's better known -- alongside various government agencies. (The short hand for the acronyms: Anything starting with "NAR" is a Michoacan drug cell; those starting with "FUN" are government agencies.) The arrows show links between each one, meaning they're sharing information. But what's most interesting is that the size of the bubbles shows how much information each cell of the organization is able to share:
We're not quite sure how accurate the information is or how it was gathered, but what strikes you is that the group is far from centralized. Instead, it's extraordinarily diffuse, much like Al Qaeda, for example. And that in turn surely contributes to the fear the organization sows -- it's power must seem limitless in Mexico precisely because its influence, even when small, is always very close at hand, due to the prevalence of tiny, semi-autonomous cells everywhere you look.
The diffuse nature of the organization, and its web of contacts, means that if you're a Mexican living near one of their power bases, there's literally no where you can turn without meeting La Familia's influence. Moreover, as documented before, each of the cells is independent enough that you never know if you're crossing the path of some new menace with every interaction. You can never be sure if by pleasing one branch, you're offending another. And that type of uncertainty is the very nature of fear itself.
But perhaps the most sobering part of this chart is that it even exists. The fact that it's possible to know so much about the organization while simultaneously being totally unable to stop it speaks volumes about the nature of Mexico's drug problem.
COMMENTARY:
UPDATE 1: On December 9, 2010, Nazario Moreno González a.k.a. El Más Loco (The craziest one)) was killed in Michoacan during a gun battle against security forces. The shootout lasted about 2 days when La Familia gunmen attacked Federal Police in the city of Apatzingan and used burning vehicles as barricades, surrounding the state capital of Morelia in an attempt to prevent Federal Police from receiving reinforcements. A Federal government official confirms the death of Nazatio Moreno Gonzalez.
UPDATE 2: On June 22, 2011, the Mexican government announced the capture of alleged La Familia Michoacana drug cartel leader Jose de Jesus Mendez Vargas, aka El Chango or the Monkey. While parading Mendez Vargas in front of the media cameras, Mexican officials were bragging about how La Familia will now disintegrate and will no longer function as a criminal organization after the ‘heroic’ actions that led to his capture during a joint military-federal police operation.
It is believed that the capture of Jose de Jesus Mendez Vargas and the death of Nazario Moreno Gonzalez has left a vacuum within La Familia Michoacan that has been filled by other cartel co-founders, Enrique Plancarte Solís and Servando Gómez Martínez.
Billions of dollars of marijuana are currently being brought over the US-Mexican border. In 2006, violent Mexican drug cartels are estimated to have received $5.2 billion in U.S. marijuana sales, reflecting 60% of their total revenue of at least $8.6 billion.
The U.S. State Department estimates that 90% of the cocaine supply in the United States comes from Mexico, with the current amount of total Mexican drug trade, including marijuana, in wide-ranging figures of $13.6 billion to $48.4 billion.
Every business should be prepared to change its business model with changing conditions. Always have a Plan B and C. The Mexico’s drug cartels have adopted this strategy, diversifying their operations in recent years, branching out into piracy, prostitution, theft of oil and minerals, the sale of adulterated liquor and other illegal activities. Here are some examples of the Mexican cartels diversification efforts:
Minerals - In one recent operation against the nation’s cartels, the arrest of the reputed money manager of the crime syndicate La Familia Michoacana, it was discovered that that organization sold 1.1 million tons of illegally extracted iron ore in China for $42 million.
Gas & Oil - The oil industry has also been affected by the encroachment of organized crime, which has stolen $300 million worth of natural gas liquids from state energy monopoly Petroleos Mexicanos’ facilities over the past four years, according to official figures.
Piracy - Mexican companies lost some $3.07 billion in 2009 as a result of piracy and merchandise theft, according to a report from Grupo Multisistemas de Seguridad Industrial, an electronic security services firm. That report revealed that 65 percent of the CDs and cassettes sold in the country are pirated copies sold by illegal producers, who make an estimated $220 million in annual revenue from those sales
NOTE: Events happen suddently and violently within La Familia Michoacan. You just never know who has been arrested or killed, or whether there is a power struggle within La Familia, and a new Boss will emerge to take over La Familia. These are all bad people whose thirst for power and money is unquenchionable. As soon as I know more, I will update the above chart. If you know of a new organization chart for La Familia please let me know, and I will update.
The following video as of December 10, 2010 does a fairly good job of identifying the leaders of La Familia as of December 2010, most of them in the earlier organizational chart. Unfortunately, it is in Spanish, so you will just have to grunt and bear it for now, but I think you have the chops to figure it out.
In closing: "I don't always have a beer, but when I do, I drink Dos Equis" - The Most Interesting Man In The World
"President Obie, sir, we've got an all-out cyberattack from the Chinese in progress. I need your okay for a counter-attack."
WASHINGTON—U.S. intelligence agencies have pinpointed many of the Chinese groups responsible for cyberspying in the U.S., and most are sponsored by the Chinese military, according to people who have been briefed on the investigation.
Armed with this information, the U.S. has begun to lay the groundwork to confront China more directly about cyberspying. Two weeks ago, U.S. officials met with Chinese counterparts and warned China about the diplomatic consequences of economic spying, according to one person familiar with the meeting.
U.S. Air Force personnel work in the Air Force Space Command Network Operations & Security Center at Peterson Air Force Base in Colorado Springs, Colorado in a July 2010 file photo.
The Chinese cyberspying campaign stems largely from a dozen groups connected to China's People's Liberation Army and a half-dozen nonmilitary groups connected to organizations like universities, said those who were briefed on the investigation. Two other groups play a significant role, though investigators haven't determined whether they are connected to the military.
In many cases, the National Security Agency (See my blog post dated April 28, 2011) has determined the identities of individuals working in these groups, which is a critical development that provides the U.S. the option of confronting the Chinese government more directly about the activity or responding with a counterattack, according to former officials briefed on the effort.
James Lewis, a cybersecurity specialist at the Center for Strategic and International Studies who frequently advises the Obama administration said.
"It's actually a small number of groups that do most of the PLA's dirty work. NSA is pretty confident of their ability to attribute [cyberespionage] to this set of actors."
In early November, the U.S. chief of counterintelligence issued a report that was unusually blunt in accusing China of being the world's "most active and persistent" perpetrator of economic spying. Lawmakers have also become more vocal in calling out China for its widening campaign of cyberespionage.
Still, diplomatic considerations may limit the U.S. interest in taking a more confrontational approach because some U.S. officials are wary of angering China, the largest holder of U.S. debt.
Chinese Foreign Ministry spokesman Liu Weimin said.
"Chinese law clearly prohibits hacking and that the Chinese government cracks down on such behavior and actively participates in international cooperation."
He said.
"Accusations that China participates in such hacking, or that the Chinese government is behind it, are totally ungrounded."
Chinese officials regularly dispute U.S. allegations of cyberspying, saying they are the victims, not the perpetrators, of cybercrime and cyberespionage. An NSA spokeswoman declined to comment.
Identifying adversaries has been difficult because it is easy to fake identities and locations in cyberspace. An inability to tie cyberspying activities with precision to a certain actor has in the past limited the U.S.'s ability to respond because it's hard to retaliate or confront an unidentified adversary.
The U.S. government, led by the National Security Agency, has tracked the growing Chinese cyberspying campaign against the U.S. for decades. Past government efforts have had exotic names like "Titan Rain," and "Byzantine Hades."
More recently, NSA and other intelligence agencies have made significant advances in attributing cyberattacks to specific sources—mostly in China's People's Liberation Army—by combining cyberforensics with ongoing intelligence collection through electronic and human spying, Mr. Lewis said.
The U.S. investigation of China's activities is the latest round of spy-versus-spy in cyberspace.
On April 29, 2001, a Chinese jet fighter accidentally collided with a U.S. Navy EP-3 reconnaissance (spy) plane patrolling off the Chinese coast near Hainan Island. The incident setoff a dangerous confrontation between the U.S. and China. Luckily, 'cooler heads prevailed' and the U.S. plane and its crew were released finally released.
The activity breaks down into cyberspying efforts by 20 groups with different attack styles that are responsible for most of the cybertheft of U.S. secrets, said the people briefed on the investigation. U.S. intelligence officials have given different classified code names to each group.
U.S. intelligence officials can identify different groups based on a variety of indicators. Those characteristics include the type of cyberattack software they use, different Internet addresses they employ when stealing data, and how attacks are carried out against different targets. In addition to U.S. government agencies, major targets of these groups include U.S. defense contractors, according to former officials.
A Chinese state TV report alludes to attacks on websites in the U.S.
Collectively, these groups employ hundreds of people, according to former officials briefed on the effort. That number is believed to be small compared to the estimated 30,000 to 40,000 censors the Chinese government is believed to employ to patrol the Internet.
The Chinese government is believed to have been behind a number of recent major cyberbreak-ins, including multiple hacks of Google Inc. and the EMC Corp.'s RSA unit, which makes the numerical tokens used by millions of corporate employees to access their network.
A cyberattack revealed this year on Lockheed Martin Corp. is also believed to have been traced to China, and the Chinese are believed to have been responsible for an infiltration a few years ago of the Pentagon's Joint Strike Fighter weapons program, which is also managed by Lockheed.
The counterintelligence report released last month predicted that China's espionage efforts will continue to grow.
COMMENTARY: In a blog post dated November 6, 2011, I described to you in great detail the "undeclared" cyberwar that exists between China and the U.S.
There are no jet fighter attacks, intercontinental ballistic missles, special forces on the ground, or shots fired, but in every sense of the word, there is a real war between the U.S. and China.
This is a different kind of war, a clandestine electronic war, between the world's two greatest economic and military powers. Most Americans and Chinese citizens are not even aware that this war exists until they read about it in the newspapers or see it on the evening television news.
Neither side will ever openly admit that their secure sytems networks were ever compromised or broken into, or secrets stolen.
This new form of warfare does use military missles, great naval armadas or air fleets, but uses powerful computers, sophisticated spy and viral software, and some of the brightest hackers in the world.
Let's look at the American and Chinese Cyber Forces.
USCYBERCOM - THE U.S. FIRST LINE OF DEFENSE
In a blog post dated February 7, 2011, I profiled America's cyberwar first line of defense: USCYBERCOM or CYBERCOM.
The federal government department entrusted with the job of protecting America against cyber attacks is the United States Cyber Command (USCYBERCOM or CYBERCOM).
On June 23, 2009, the Secretary of Defense directed the Commander of U.S. Strategic Command (USSTRATCOM) to establish USCYBERCOM. Initial Operational Capability (IOC) was achieved on May 21, 2010.
Secretary of Defense, Robert Gates, and Joint Chiefs of Staff of the the four branches of the U.S. Military salute the establishment of USSTRATCOM and USCYBERCOMMAND on May 21, 2010
The mission of USCYBERCOM is to plan, coordinate, integrate, synchronize, and conduct activities to: direct the operations and defense of specified Department of Defense information networks and; prepare to, and when directed, conduct full-spectrum military cyberspace operations in order to enable actions in all domains, ensure US/Allied freedom of action in cyberspace and deny the same to our adversaries.
USCYBERCOM combines the Department’s full spectrum of cyberspace operations and plans, coordinates, integrates, synchronizes, and conducts activities to:
Lead day-to-day defense and protection of Department of Defense (DoD) information networks,
Coordinate DoD operations providing support to military missions;.
Direct the operations and defense of specified DoD information networks.
Prepare to, and when directed, conduct full spectrum military cyberspace operations.
The command is charged with pulling together existing cyberspace resources, creating synergy that does not currently exist and synchronizing war-fighting effects to defend the information security environment.
USCYBERCOM centralizes command of cyberspace operations, strengthen DoD cyberspace capabilities, and integrate and bolster DoD’s cyber expertise. Consequently, USCYBERCOM improves DoD’s capabilities to ensure resilient, reliable information and communication networks, counter cyberspace threats, and assure access to cyberspace. USCYBERCOM’s efforts also support the Armed Services’ ability to confidently conduct high-tempo, effective operations as well as protect command and control systems and the cyberspace infrastructure supporting weapons system platforms from disruptions, intrusions and attacks.
USCYBERCOM is a sub-unified command subordinate to USSTRATCOM. Service Elements include the four key branches of the U.S. military:
U.S. Army – Army Cyber Command (ARCYBER)
U.S. Air Force – 24th USAF
U.S. Navy – Fleet Cyber Command (FLTCYBERCOM)
U.S. Marine Corp – Marine Forces Cyber Command (MARFORCYBER)
CYBER BLUE TEAM - CHINA'S FIRST LINE OF DEFENSE
In a blog post dated July 16, 2011, I profiled China's cyberwar first line of defense: CYBER BLUE TEAM.
China's Blue Cyber Team busy hacking somebody's network
China's military has set up an elite Internet security task force tasked with fending off cyber attacks, state media reported May 27, denying that the initiative is intended to create a "hacker army."
China's Defense Ministry revealed for the first time in May that it had formed a 30-strong cyber defense unit, called the "Blue Army," but insisted that it was for defensive purposes only.
On May 27, 2011, China's Defense Ministry spokesman Geng Yansheng announces the formation of China's Cyber Blue Team
The People's Liberation Army has reportedly invested tens of millions of dollars in the project, which is sure to ring alarm bells around the world among governments and businesses wary of Beijing's intentions.
The Global Times quoted China's defense ministry spokesman Geng Yansheng as telling a rare briefing this week.
"Cyber attacks have become an international problem affecting both civilian and military areas. China is relatively weak in cyber-security and has often been targeted. This temporary program is aimed at improving our defenses against such attacks."
The 30-member "Cyber Blue Team" - the core of the PLA's cyber force - has been organized under the Guangdong military command in the country's south and will carry out "cyber-warfare drills", the newspaper said.
China's Cyber Capabilities (Click Image To Enlarge)
The Cyber Blue Team is based in Jinan, China where there are 12 Universities and a high tech zone and boast 6 million people. It’s also the headquarter of the PLA. The squad is aimed at carrying out attacks on other countries Internet.
Li Li, a military expert at the National Defense University said,
“China’s Online Blue Army is currently at its fledging period."
Zhang Shaozhong, a military expert from the PLA adds.
“Just like the army and air forces, the ‘online blue army' is a historical necessity."
The reason is very simple. Teng Jianqun, a research fellow at the China Institute of International Studies, said.
“We must adapt to the new types of warfare in the information era. The ‘online blue army’ is of great strategic significance to China’s economic development and social stability.”
The United States, Australia, Germany and other Western nations have long alleged that hackers inside China are carrying out a wide-range of cyberattacks on government and corporate computer systems worldwide.
But in a commentary, the Global Times hit out at "some foreign media" for interpreting the program as a breeding ground for a "hacker army" said.
"China's capability is often exaggerated. Without substantiated evidence, it is often depicted by overseas media as the culprit for cyberattacks on the US and Europe. China needs to develop its strong cyber defense strength. Otherwise, it would remain at the mercy of others."
China's military has received annual double-digit increases in its budget over much of the last two decades as it tries to develop a more modern force capable of winning increasingly high-tech wars.
In 2007, the Pentagon raised concerns about a successful Chinese ballistic missile test strike on a satellite. That weapon could be used to knock out the high-tech communications of its enemies.
U.S. computer firm McAfee said in February that hackers from China have also infiltrated the computer networks of global oil companies and stole financial documents on bidding plans and other confidential information.
According to US diplomatic cables obtained and published by WikiLeaks, the United States believes that China's leadership has directed hacking campaigns against U.S. Internet giant Google and Western governments.
In one cable, the U.S. Embassy in Beijing said it learned from "a Chinese contact" that the Politburo had led years of hacking into computers of the United States, its allies and Tibet's exiled spiritual leader, the Dalai Lama.
WHO's WINNING THE CYBERWAR?
USCYBERCOM and China's Blue Cyber Team are very new cyber organizations. Both organizations carry out and defend against cyber attacks. Both were established with the goal of defending their their military organizations against cyber attacks, from each other, rogue nations, cyber terrorist groups bent on compromising their defense systems. It's very difficult to ascertain which country is winning the cyber wars since neither the U.S. or China military will publicly acknowledge every single cyber attack and what was compromised. The following lists major cyber attacks committed by the Chinese against the U.S. and its allies against the U.S. military, government agencies and embassies between 1999 and 2009.
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US Deputy Defence Secretary William Lynn said that in a March 2011 attack and other breaches, hackers had taken information on "our most sensitive systems". The admission came as the Pentagon rolled out a strategy for strengthening US cyber capabilities and addressing threats and attacks in cyberspace.
In a speech at National Defense University in Washington, Mr Lynn said about 24,000 files containing Pentagon data were stolen from a defence industry computer network in March, marking one of the largest cyber attacks in US history.
CYBER ATTACKS RULES OF ENGAGEMENT
At the end of October 2011, there was a Wall Street Journal story reporting that the US government had decided that certain types of cyber attacks originating from another country can constitute an act of war, and therefore could trigger a "traditional" military response from the US. from the US.
As one military official in the WSJ article stated it:
"If you shut down our power grid, maybe we will put a missile down one of your smokestacks."
Well, today there is a long AP story that says that Preident Barack Obama signed executive orders about a month ago outlining when and how US military commanders can employ cyber capabilities to mount cyber attacks or conduct espionage against other countries.
Defense officials and security experts told the AP that:
"The orders detail when the military must seek presidential approval for a specific cyber assault on an enemy and weave cyber capabilities into U.S. war fighting strategy."
The executive orders act in a similar fashion as operational theater rules of engagement. The AP story states, for example, that:
"Under the new Pentagon guidelines, it would be unacceptable to deliberately route a cyberattack through another country if that nation has not given permission - much like U.S. fighter jets need permission to fly through another nation's airspace."
The full set of cyberwar guidelines have not been announced, but the US Department of Defense is expected to do so soon.
CIVILIAN ORGANIZATION CYBERATTACKS
Cyber attacks against both US and Chinese civilian organizations occur almost on a daily basis.
China reported that in 2010 year its government websites experienced a 68 percent increase in cyber attacks.
The Chinese government has been accused of sponsoring cyber attacks against major companies like Google and Yahoo as well as governments around the world.
A report released by the National Computer Network Emergency Response Technical Team/Coordination Center of China (CNCERT/CC) found that a total of 35,000 Chinese websites, including 4,635 government sites, were hit by hackers in 2010.
Attacks on China's non-government websites actually decreased 22 percent in 2010, while attacks on government websites had increased nearly 70 percent.
The report also found that roughly 60 percent of ministerial-level websites have potential security risks.
McAfee, a cybersecurity company owned by Intel, announced on August 4, 2011, that it uncovered a wide-ranging, global cyber attack that impacted 72 organizations.
The U.S. cannot afford to let its guard down for a single second. We are fighting a very devious and invisible enemy, who can strike at any moment. We don't know where they will strike. It could be a miltiary installation, our power grid system, national air traffic control system, the Federal Reserve Bank or Facebook's data center in Washington state.
We do know that China's Cyber Blue Team and individual Chinese cyber criminals mean business and we have to be on the alert at all times. If this is the way tomorrow's wars will be fought we must be ready, and prepared to pay whatever it takes to insure our national security.
I am happy to hear that USCYBERCOM has identified China's cyber culprits including the individual PLA units, names of the individuals or groups involved. We need to lower the hammer, and just let them have it with an all-out, bent for leather, cyberattack of our own, and let them know "whose their daddy".
A security vulnerability in Facebook Inc.'s social-networking site exposed by some users sent the company scrambling for a fix after Chief Executive Mark Zuckerberg's private photos were published online.
In a Nov. 27 post on the Web forum Bodybuilding.com, an anonymous writer listed step-by-step instructions on how to access photos uploaded by other Facebook members, even if the images had been marked as private.
The process involved a Facebook feature that lets users identify pornographic or inappropriate images on the site. The forum post showed that by flagging another user's profile, one Facebook member was able to gain access to the other's private images.
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A blogger on Tuesday reported on the security flaw, and used it to publish a photo from Mr. Zuckerberg's private collection. Others then used the flaw to publish further photos from Mr. Zuckerberg's collection, including images of the Facebook CEO preparing food in a kitchen and distributing candy to Halloween trick-or-treaters.
Click Image To Enlarge
It wasn't immediately clear how long the Facebook security flaw was available on the Web, or how many of the site's more than 800 million users were affected. But the company attributed the problem to a recent revision of its software.
Click Image To Enlarge
In a statement, a Facebook spokesman said.
"The flaw was the result of one of our recent code pushes and was live for a limited period of time. Upon discovering the bug, we immediately disabled the system, and will only return functionality once we can confirm the bug has been fixed."
The anonymous poster responded in an email to a request for comment by saying he discovered the flaw accidentally. The post, who gave his name only as john P., lists his hometown as Syracuse, N.Y. and said,
"I am an IT professional. This is simply terrible programming on Facebook's part. Inexcusable considering how many engineers and web developers they have working for them."
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Facebook has faced a series of questions about its security and privacy features since it was founded in 2004. The site has rapidly gained popularity, and Facebook is expected to stage an initial public offering of shares next year that could value the company at over $100 billion.
Last month, Facebook announced it had reached a settlement with the U.S. Federal Trade Commission, after the regulator found the company had misled users about the use of their personal information.
Click Image To Enlarge
The settlement requires Facebook "to establish and maintain a comprehensive privacy program," the FTC said at the time.
AllThingsD's Liz Gannes reviewed Mark Zuckerberg's posts over the past five years, and out of 25, ten were written to address privacy complaints.
The posting of Mr. Zuckerberg's photos Tuesday recalls a similar attack staged in January, when a hacker appeared to post a message purporting to be by the CEO that suggested the company raise funding from its own users rather than banks.
COMMENTARY: I wonder how many other pics of unsuspecting Facebook users were hijacked in the same fashion as were Zuck's. That's a scary thought isn't it?
Courtesy of an article dated December 7, 2011 appearing in The Wall Street Journaland an article dated December 7, 2011 appearing in The Telegraph
BEIJING — Chinese state television has broadcast footage of what two experts on the Chinese military say appears to be a military institute demonstrating software designed to attack websites in the U.S.
A presenter introduces a TV report appearing to contradict assertions China doesn't engage in cyberattacks
Although it could be a decade old or a mock-up, the 10-second segment—part of a longer report on cybersecurity—appears to be a rare example of an official source contradicting China'a repeated assertions that it doesn't engage in cyberattacks, according to Andrew Erickson and Gabe Collins of the China SignPost analytical service, which specializes in military matters.
The slightest suggestion that the Chinese military has attacked U.S. websites is highly sensitive, especially since the Pentagon published a new cyberstrategy in July that laid the ground for the U.S. to potentially respond with traditional military force to crippling cyberattacks from abroad.
That move followed a string of cyberattacks over the past few years on U.S. targets including Google Inc., Lockheed Martin Corp. and the Pentagon itself, which many U.S. officials believe originated in China, though they haven't so far offered evidence publicly to prove this.
The change also reflected mounting concerns in the Pentagon that insufficient resources have been invested in defense against cyberattacks—which were inflicted on Georgia during its brief war with Russia in 2008 but are still unregulated by international law and are likely to be a key element of future wars.
China's Foreign and Defense Ministries didn't respond to requests for comment Wednesday. Nor did China Central Television Channel 7, known as CCTV-7, where the footage was shown. In the past, China's government has repeatedly denied any involvement in cyberattacks and has said that China itself is one of the biggest victims of hacking.
The brief footage—the relevant segment runs no more than 10 seconds—didn't attract much domestic or international attention when it was first screened last month as part of a 20-minute report on cybersecurity broadcast on CCTV-7, which covers military affairs.
But it was highlighted Wednesday in a report published by Dr. Erickson, an associate professor at the U.S. Naval War College's China Maritime Studies Institute, and Mr. Collins, a commodities and security specialist focusing on Russia and China.
The footage, which could still be seen on CCTV's website as of late Wednesday, features Senior Col. Du Wenlong, a researcher at the Chinese army's Academy of Military Sciences, giving a detailed analysis of cybersecurity issues around the world.
At one point, as a narrator discusses various forms of cyberattack, a cursor is shown moving on a computer screen with a software application that is identified in Chinese characters as a "distributed denial-of-service" attack. Also known as DDOS, such attacks are relatively unsophisticated tools of cyberwarfare that involve bombarding websites with data to disable them.
The next screen says at the top, in Chinese, "Attack system..PLA Electronic Engineering Institute." PLA stands for People's Liberation Army.
Below, it asks the user to "Choose the attack target" from a drop-down list of websites related to the Falun Gong spiritual movement, which China's government banned in 1999 and which has been the object of a sustained crackdown ever since.
The cursor highlights one, called Minghui.org, and then clicks on a large button below saying "Attack."
The IP address given for the selected website—which is currently unavailable in China but accessible in the U.S.—is 138.26.72.17 and is registered to the University of Alabama in Birmingham, according to at least two websites that trace IP addresses.
Dr. Erickson and Mr. Collins said that if the footage was real, it was probably a decade old, because of the rudimentary nature of the DDOS attack depicted, and because there was a spate of such attacks on Falun Gong targets 10 year ago.
They also said it was unclear whether the footage—which might also have depicted a civilian hacker—was included to reassure a domestic audience about China's cybercapability, or simply because it suited CCTV-7's need for some relevant imagery.
But they argued that, even if it were a symbolic representation, it was significant all the same because it was shown on CCTV, one of the government's main official mouthpieces, and depicted as an attack on a foreign website wrote.
"It appeared to show dated computer screenshots of a Chinese military institute conducting a rudimentary type of cyberattack against a U.S.-based dissident entity. However modest, ambiguous—and, from China's perspective, defensive—this is possibly the first direct piece of visual evidence from an official Chinese government source to undermine Beijing's official claims never to engage in overseas hacking of any kind for government purposes."
They added later:
"It certainly looks like a 'smoking cursor,' albeit a relatively modest one. China undoubtedly has far superior capabilities at its disposal today."
China's Defense Ministry revealed for the first time in May that it had formed a 30-strong cyber defense unit, called the "Blue Army," but insisted that it was for defensive purposes only.
However, foreign security officials and Internet-security experts continue to allege that a significant proportion of military and corporate cyberattacks originate from China.
The cybersecurity company McAfee Inc said in February that hackers who appeared to be based in China had conducted a "coordinated, covert and targeted" campaign of cyberespionage against five multinational energy firms since at least since 2009 and possibly since 2007.
McAfee released another report this month suggesting that an unidentified "state actor" was behind a massive years-long cyberattack on organizations including United Nations agencies, the government of Taiwan and the International Olympic Committee.
COMMENTARY: As you know by now, I have been covering the "undeclared" cyberwar that exists between China and the U.S. since 2010. On several occasions the U.S. has accused China of conducting unproked and clanestine cyberattacks on U.S. military facilities and corporations.
CYBERCOM - The U.S. First Line of Defense
In a blog post dated February 7, 2011, I profiled America's cyberwar first line of defense: USCYBERCOM or CYBERCOM.
The federal government department entrusted with the job of protecting America against cyber attacks is the United States Cyber Command (USCYBERCOM or CYBERCOM).
On June 23, 2009, the Secretary of Defense directed the Commander of U.S. Strategic Command (USSTRATCOM) to establish USCYBERCOM. Initial Operational Capability (IOC) was achieved on May 21, 2010.
U.S. Army General B. Alexander is in charge of CYBERCOM. General Alexander is also the present Director of the National Security Agency (NSA).
The mission of USCYBERCOM is to plan, coordinate, integrate, synchronize, and conduct activities to: direct the operations and defense of specified Department of Defense information networks and; prepare to, and when directed, conduct full-spectrum military cyberspace operations in order to enable actions in all domains, ensure US/Allied freedom of action in cyberspace and deny the same to our adversaries.
USCYBERCOM combines the Department’s full spectrum of cyberspace operations and plans, coordinates, integrates, synchronizes, and conducts activities to:
Lead day-to-day defense and protection of Department of Defense (DoD) information networks,
Coordinate DoD operations providing support to military missions;.
Direct the operations and defense of specified DoD information networks.
Prepare to, and when directed, conduct full spectrum military cyberspace operations.
The command is charged with pulling together existing cyberspace resources, creating synergy that does not currently exist and synchronizing war-fighting effects to defend the information security environment.
USCYBERCOM centralizes command of cyberspace operations, strengthen DoD cyberspace capabilities, and integrate and bolster DoD’s cyber expertise. Consequently, USCYBERCOM improves DoD’s capabilities to ensure resilient, reliable information and communication networks, counter cyberspace threats, and assure access to cyberspace. USCYBERCOM’s efforts also support the Armed Services’ ability to confidently conduct high-tempo, effective operations as well as protect command and control systems and the cyberspace infrastructure supporting weapons system platforms from disruptions, intrusions and attacks.
USCYBERCOM is a sub-unified command subordinate to USSTRATCOM. Service Elements include the four key branches of the U.S. military:
U.S. Army – Army Cyber Command (ARCYBER)
U.S. Air Force – 24th USAF
U.S. Navy – Fleet Cyber Command (FLTCYBERCOM)
U.S. Marine Corp – Marine Forces Cyber Command (MARFORCYBER)
CYBER BLUE TEAM - China's First Line of Defense
In a blog post dated July 16, 2011, I profiled China's cyberwar first line of defense: CYBER BLUE TEAM.
China's military has set up an elite Internet security task force tasked with fending off cyber attacks, state media reported May 27, denying that the initiative is intended to create a "hacker army."
The People's Liberation Army has reportedly invested tens of millions of dollars in the project, which is sure to ring alarm bells around the world among governments and businesses wary of Beijing's intentions.
The Global Times quoted China's defense ministry spokesman Geng Yansheng as telling a rare briefing this week.
"Cyber attacks have become an international problem affecting both civilian and military areas. China is relatively weak in cyber-security and has often been targeted. This temporary program is aimed at improving our defenses against such attacks."
The 30-member "Cyber Blue Team" - the core of the PLA's cyber force - has been organized under the Guangdong military command in the country's south and will carry out "cyber-warfare drills", the newspaper said.
The Cyber Blue Team is based in Jinan, China where there are 12 Universities and a high tech zone and boast 6 million people. It’s also the headquarter of the PLA. The squad is aimed at carrying out attacks on other countries Internet.
Li Li, a military expert at the National Defense University said,
“China’s Online Blue Army is currently at its fledging period."
Zhang Shaozhong, a military expert from the PLA adds.
“Just like the army and air forces, the ‘online blue army' is a historical necessity."
The reason is very simple. Teng Jianqun, a research fellow at the China Institute of International Studies, said.
“We must adapt to the new types of warfare in the information era. The ‘online blue army’ is of great strategic significance to China’s economic development and social stability.”
The United States, Australia, Germany and other Western nations have long alleged that hackers inside China are carrying out a wide-range of cyberattacks on government and corporate computer systems worldwide.
But in a commentary, the Global Times hit out at "some foreign media" for interpreting the program as a breeding ground for a "hacker army" said.
"China's capability is often exaggerated. Without substantiated evidence, it is often depicted by overseas media as the culprit for cyberattacks on the US and Europe. China needs to develop its strong cyber defense strength. Otherwise, it would remain at the mercy of others."
China's military has received annual double-digit increases in its budget over much of the last two decades as it tries to develop a more modern force capable of winning increasingly high-tech wars.
In 2007, the Pentagon raised concerns about a successful Chinese ballistic missile test strike on a satellite. That weapon could be used to knock out the high-tech communications of its enemies.
U.S. computer firm McAfee said in February that hackers from China have also infiltrated the computer networks of global oil companies and stole financial documents on bidding plans and other confidential information.
According to US diplomatic cables obtained and published by WikiLeaks, the United States believes that China's leadership has directed hacking campaigns against U.S. Internet giant Google and Western governments.
In one cable, the U.S. Embassy in Beijing said it learned from "a Chinese contact" that the Politburo had led years of hacking into computers of the United States, its allies and Tibet's exiled spiritual leader, the Dalai Lama.
WHO's WINNING THE CYBERWAR?
USCYBERCOM and China's Blue Cyber Team are very new cyber organizations. Both organizations carry out and defend against cyber attacks. Both were established with the goal of defending their their military organizations against cyber attacks, from each other, rogue nations, cyber terrorist groups bent on compromising their defense systems. It's very difficult to ascertain which country is winning the cyber wars since neither the U.S. or China military will publicly acknowledge every single cyber attack and what was compromised. The following lists major cyber attacks committed by the Chinese against the U.S. and its allies against the U.S. military, government agencies and embassies between 1999 and 2009.
[Click To Enlarge Image]
US Deputy Defence Secretary William Lynn said that in a March 2011 attack and other breaches, hackers had taken information on "our most sensitive systems". The admission came as the Pentagon rolled out a strategy for strengthening US cyber capabilities and addressing threats and attacks in cyberspace.
In a speech at National Defense University in Washington, Mr Lynn said about 24,000 files containing Pentagon data were stolen from a defence industry computer network in March, marking one of the largest cyber attacks in US history.
CYBER ATTACKS RULES OF ENGAGEMENT
At the end of last month, there was a Wall Street Journal story reporting that the US government had decided that certain types of cyber attacks originating from another country can constitute an act of war, and therefore could trigger a "traditional" military response from the US. from the US.
As one military official in the WSJ article stated it:
"If you shut down our power grid, maybe we will put a missile down one of your smokestacks."
Well, today there is a long AP story that says that Preident Barack Obama signed executive orders about a month ago outlining when and how US military commanders can employ cyber capabilities to mount cyber attacks or conduct espionage against other countries.
Defense officials and security experts told the AP that:
"The orders detail when the military must seek presidential approval for a specific cyber assault on an enemy and weave cyber capabilities into U.S. war fighting strategy."
The executive orders act in a similar fashion as operational theater rules of engagement. The AP story states, for example, that:
"Under the new Pentagon guidelines, it would be unacceptable to deliberately route a cyberattack through another country if that nation has not given permission - much like U.S. fighter jets need permission to fly through another nation's airspace."
The full set of cyberwar guidelines have not been announced, but the US Department of Defense is expected to do so soon.
CIVILIAN ORGANIZATION CYBERATTACKS
Cyber attacks against both US and Chinese civilian organizations occur almost on a daily basis.
China reported that in 2010 year its government websites experienced a 68 percent increase in cyber attacks.
The Chinese government has been accused of sponsoring cyber attacks against major companies like Google and Yahoo as well as governments around the world.
A report released by the National Computer Network Emergency Response Technical Team/Coordination Center of China (CNCERT/CC) found that a total of 35,000 Chinese websites, including 4,635 government sites, were hit by hackers in 2010.
Attacks on China's non-government websites actually decreased 22 percent in 2010, while attacks on government websites had increased nearly 70 percent.
The report also found that roughly 60 percent of ministerial-level websites have potential security risks.
McAfee, a cybersecurity company owned by Intel, announced on August 4, 2011, that it uncovered a wide-ranging, global cyber attack that impacted 72 organizations.
A total of 36 corporations, 12 non-profits and 22 government organizations were affected, including 15 U.S. government agencies and the United Nations.
Courtesy of an article dated August 25, 2011 appearing in The Wall Street Journal Asiaan article dated June 22, 2011 appearing in IEEE Spectrum, an article dated August 4, 2011 appearing in CNN Money, and an article dated June 13, 2011 appearing in USCyberLabs
A new reason for outrage at Solyndra: executive bonuses. Aren’t employees at Silicon Valley startups supposed to scrimp and economize?
While Solyndra burned, the executives fiddled -- and kept feeding themselves healthy bonuses.
Dana Hull of the San Jose Mercury News read the 277-page Solyndra bankruptcy documents so you wouldn't have to. She uncovered the fact that Solyndra bankruptcy law firm Gibson, Dunn & Crutcher earned $616,838 this summer -- including $275,000 on August 19. (Here's a link to download the bankruptcy document.)
Solyndra corporate headquarters in Fremont, California
Solyndra's manufacturing facility wasn't just any factory. When it was completed at an estimated cost of $733 million, including proceeds from a $528 million federal loan guarantee, it covered 300,000 square feet, the equivalent of five football fields. It had robots that whistled Disney tunes, spa-like showers with liquid-crystal displays of the water temperature, and glass-walled conference rooms.
I took a look at the document and it appears that executives were provided substantial bonuses at the same time that the firm was bleeding cash and soon to lay off 1,100 employees with little notice or continuing health care benefits.
Here are a few screen captures of the appalling lack of fiscal responsibility at this company.
Karen Alter, Senior Vice President of Marketing at Solyndra, received $55,000 on April 15, 2011 and $55,000 on July 8 to go along with her quarter-million-dollar salary. Ben Bierman picked up $60,000 on April 15 and another $60,000 on July 8 to supplement his $276,000 salary. Bierman was EVP of Operations and Engineering and was presenting cheery, optimistic PowerPoint obfuscation sessions as late as July, as well.
Paula Camporaso, VP of Information Technology; Dave Sanat, Vice President of Supply Chain; and John Gaffney, Corporate Counsel were among the many Solyndrans also collecting substantial bonuses.
Dr. Chris Gronet, one of the founders of Solyndra and the firm's former CEO, "transitioned to the role of advisor and consultant" on July 1, weeks prior to the official announcement of him pursuing "new opportunities and challenges in cleantech." He was supposed to receive a $456,000 severance package but never received the funds.
COMMENTARY: I find the payments of executive bonuses disgusting, even more so, because Solyndra was going down in flames, and those punkasses probably knew it, so they just paid themselves bonuses while there was still money in the bank. Screw the rest of the little people.
FBI agents raided Solyndra's corporate headquarters on September 20, 2011 in the hopes of determing why Solyndra declared bankruptcy, ran out of money so quickly or if any crimes were committed.
Solyndra's Cylindrical Solar Panel Technology
Solyndra designs and manufactures proprietary cylindrical modules incorporating copper indium gallium diselenide (CIGS) thin-film technology. Solyndra panels employ cylindrical modules which capture sunlight across a 360-degree photovoltaic surface capable of converting direct, diffuse and reflected sunlight into electricity. In the industry sometimes panels are referred to as modules; at Solyndra, each panel is made up of individual modules.
A Solyndra module starts in its front-end facility as a glass tube and passes through a complex, highly-automated manufacturing process and rigorous quality control before emerging as an encapsulated package ready to efficiently convert energy from the sun. There are approximately 23 steps to build and protect the 195 thin-film solar cells created in the manufacture of each module, encompassing cleaning, deposition, scribing, binning, insertion, filling, testing, panel framing and flash testing.
Each module in a panel has 195 individual solar cells.The inner cylinder is protected by a liquid optical coupling agent (OCA) which serves as a moisture barrier and increases the active solar cell surface of the internal tube.
Each module is designed to produce electricity for more than 25 years in the harsh environment of the rooftop.The hermetic seal on our glass tubes ensure the CIGS material inside remains protected from contamination. Each tube is helium leak tested.
Solyndra calims its factory has produced over 16 million modules and each day produces approximately 1000 panels or 40,000 modules ramping to more than 3000 panels a day in 2013.
FLASH NEWS BULLETIN!!
A House panel on Thursday voted to subpoena the White House for internal emails related to a government loan to the failed solar-power company Solyndra LLC.
The House Subcommittee on Oversight and Investigations voted 14-9 along party lines in favor of the subpoena. Republicans backed the subpoena, while Democrats said it was unnecessary because the Obama administration has already produced tens of thousands of pages of documents related to the loan.
Republicans say the Obama administration has delayed releasing documents. The administration has so far turned over communications between White House officials and outsiders, but the White House is resisting releasing internal emails.
The subpoena is part of an investigation into Solyndra, which received about $527 million in government loans from 2009 to 2011 and filed for bankruptcy protection in September.
The White House could fight the subpoena but hasn't yet said how it would respond. In a statement, the White House didn't say whether it would supply the internal emails. It said the documents already released showed the decision to give the loan was based on the merits of the project.
The statement said:
"The White House has been clear with the committee that we are willing to cooperate with legitimate oversight requests that are tailored to balance the important institutional interests of both branches."
Rep. Fred Upton (R., Mich.), chairman of the House Energy and Commerce Committee, and Rep. Cliff Stearns (R., Fla.), chairman of the oversight subcommittee, defended their investigation in a statement Wednesday. They said.
"Our document requests have been reasonable, yet the stalling tactics from the Obama administration have been prodigious."
Solyndra should be called Stoleyndra, because that's what appears to have happened. It was a conspiracy all throughout, since when Solyandra's loan was approved and the final payment was written. All of this was done while bonus checks were being printed. Somebody is going to pay.
The White House has been under the heat over Solyndra since the bankruptcy filing. Everybody appears to have been caught off guard, except for the executives of Solyndra. The Obama administration thought it was highly unusual, that they ordered the Justice Department to send FBI agents to Fremont and confiscate all of Solyndra's records.
The White House also ordered the Department of Energy to investigate the entire Solyndra episode. The individual who approved the Solyndra loan was fired. Will there be more surprises? You bet, it will just get worse after today.
The Republicans are looking for a political issue, something they can pin on the Obama administration. Just in time to damage Obama's declining popularity. This could cost him the election, no doubt.
Courtesy of an article dated November 2, 2011 appearing in GreenTechSolar and an article dated November 3, 2011 appearing in The Wall Street Journal
Rajat Gupta, center, former Goldman Sachs director, exits federal court in New York on Wednesday.
Rajat Gupta, once one of America's most-respected corporate directors, was indicted on six criminal counts in an insider trading case that prosecutors said was motivated not by quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships.
WSJ legal reporter Ashby Jones stops by Mean Street to discuss former Goldman Sachs director Rajat Gupta's indictment on charges of leaking inside information.
The Charges Brought Against Raj Gupta
The U.S. accused Mr. Gupta of passing along nonpublic information to disgraced hedge-fund titan Raj Rajaratnam, gleaned from Mr. Gupta's role as a director at Goldman Sachs Group Inc. and Procter & Gamble Co. Mr. Gupta and Mr. Rajaratnam, the billionaire trader sentenced this month to an 11-year prison term, were good friends whose regular discussions of business included the illegal tips, according to federal prosecutors, the Federal Bureau of Investigation and securities regulators.
The two also were partners in investing, supporting each other's funds with money, the government alleges. Authorities say their relationship was so close that Mr. Gupta passed along tips about corporate secrets almost as soon as he received them.
Janice Fedarcyk, the FBI's assistant director in charge in New York, said Wednesday.
"His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of 39 seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
Mr. Gupta was charged with five counts of securities fraud and one count of conspiracy. He faces up to 20 years in prison on each fraud charge. Bail was set at $10 million, secured by his Westport, Conn., home. He was ordered to surrender his passport. A trial is scheduled for April 9, 2012, before U.S. District Judge Jed S. Rakoff.
According to the indictment, Mr. Gupta allegedly called Mr. Rajaratnam 16 seconds after the end of a Goldman board meeting on Sept 23, 2008, where he learned about a $5 billion investment in the bank by Berkshire Hathaway. Galleon generated an $840,000 profit in subsequent trading, prosecutors said. The indictment says Mr. Gupta tipped Mr. Rajaratnam again on Oct. 23, 2008, roughly 23 seconds after a Goldman board meeting where he was told the investment bank would suffer its first quarterly loss as a public company, saving Galleon several million dollars in losses.
Mr. Gupta is also accused of calling Mr. Rajaratnam from Switzerland on Jan. 29, 2009, with information about P&G's coming earnings release. At the time, Mr. Gupta was in Davos at the summit for World Economic Forum, for which he was a board member, according to an online picture of him at the event. Goldman declined to comment. A P&G spokesman said the company "is not a party" to the charges and had cooperated with the investigation.
Preet Bharara (below), U.S. Attorney for the Southern District of New York, speaks at a press conference following the conviction and sentencing of Galleon Group chief Raj Rajaratnam. Mr. Bharara's office is responsible for the arrest and conviction of 51 individuals involved in the insider trading case against Galleon Group's Raj Rajaratnam.
This is what U.S. Attorney Prett Bharara said in a press release following the 11-year prison sentence handed down to Raj Rajaratnam.
“Two years ago, Raj Rajaratnam stood at the summit of Wall Street, commanding his own financial empire. Then he was arrested, tried, and convicted by a jury. Mr. Rajaratnam stood convicted 14 times over of felonies, his empire exposed as a web of fraud and corruption that entangled many. Today, Mr.Rajaratnam stood once more and faced justice which was meted out to him. It is a sad conclusion to what once seemed to be a glittering story. We can only hope that this case will be the wake-up call we said it should be when Mr. Rajaratnam was arrested. Privileged professionals do not get a free pass to pursue profit through corrupt means. The message is the same for everyone no matter who you are or how much money you have — obey the law or face the fate of those who don’t.”
U.S. Attorney Preet Bharara said this about Mr. Gupta in a statement following the reading of the charges gainst Raj Gupta in Federal Court.
"Mr. Gupta became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam."
Raj Gupta's Attorney Reacts To The Federal Charges
Gary Naftalis, Mr. Gupta's lawyer, called the government allegations "totally baseless." He said Mr. Gupta "has always acted with honesty and integrity." Mr. Gupta "did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."
The charges come amid distrust of business and Wall Street, symbolized by the Occupy Wall Street movement that began blocks away from the federal courthouse where Mr. Gupta was arraigned.
Charles Munger, vice chairman of Berkshire Hathaway Inc., whose investment in Goldman during the heat of the financial crisis in 2008 was the focus of one of Mr. Gupta's alleged leaks said.
"There is a lot of insider trading—and some of that goes to high places."
The company had its own trading controversy this year after one of its top managers bought shares of a company in advance of an acquisition by Berkshire, though no charges have been brought.
The Galleon Group Web of Insider Information
The accusations indicate a new twist in an insider-trading investigation that has so far focused primarily on those who profited directly from stock tips, but is now examining a culture where prosecutors say secrets are swapped freely among powerful business figures.
Click Image To View Interactive of Galleon's Web
How Raj Gupta Surrendered To The FBI
The 62-year-old Mr. Gupta, the former managing director of consulting firm McKinsey & Co., surrendered to the FBI on Wednesday and was arraigned in a New York federal court, wearing a dark suit and light-red tie.
According to childhood friend Anand "Bill" Julka, who said he has spoken recently with Mr. Gupta, he believed it was auspicious to surrender on Diwali, a major holiday popularly known as the "Indian festival of lights," Mr. Julka said.
"He believes he is innocent and the gods will protect him if humans fail."
A representative for the Manhattan U.S. attorney's office declined to comment on the timing of the charges.
The Raj Gupta Case Is A Huge Gamble For The Federal Government
The charges against Mr. Gupta represent a gamble for the government. Manhattan U.S. Attorney Preet Bharara's office debated whether to bring charges, people familiar with the matter say. The government doesn't have wiretapped recordings of Mr. Gupta passing inside information about the trades at issue by Mr. Rajaratnam—making the case potentially more difficult for prosecutors. A loss at trial could detract from a run of victories against insider-trading defendants, lawyers say.
Mr. Gupta is the 56th person charged with insider trading by federal prosecutors in New York over the past two years; 51 have been convicted or pleaded guilty. Many of those resulted from the government's probe into the Galleon Group, which was founded and led by Mr. Rajaratnam.
Mr. Gupta's motives, and that he wasn't paid for any alleged tips, could be important if he goes to trial, because insider-trading law generally requires the government to prove that tippers received some benefit to prosecute them for leaking inside information.
But Jonathan S. Sack, a securities lawyer in New York, said based on Supreme Court case law, the Justice Department won't have to prove that the benefit Mr. Gupta received was direct or financial in nature. Prosecutors have indicated they will argue it was partially intangible.
Federal prosecutors said in the indictment.
"Gupta benefited and hoped to benefit from his friendship and business relationship with Rajaratnam in various ways, some of which were financial."
The Securities and Exchange Commission—which had brought an administrative proceeding on insider-trading charges against Mr. Gupta in March but later dropped it—separately brought a new civil lawsuit against Mr. Gupta on Wednesday. Mr. Gupta hasn't responded to the SEC's complaint, but he previously denied the regulators' allegations in March.
Anil "The Consultant" Kamar
The broad cases against Mr. Rajaratnam, Mr. Gupta and Anil Kumar—a former McKinsey partner who has pleaded guilty in the probe—also are an embarrassment for the global consulting giant, people familiar with the company say. Though not all of the charges involve information gleaned from McKinsey clients—those against Mr. Kumar did—the consulting firm prides itself on client confidentiality, and any concerns about the firm's discretion could create a risk for consulting contracts, the people say. Mr. Gupta led McKinsey from 1994 until 2003.
Anil Kumar, a former McKinsey & Co consultant, leaked insider information to Raj Rajaratnam of Galleon Group about secret merger talks between Advanced Micro Devices and ATI Technologies. Mr. Rajaratnam made $23 million from that insider information. Mr. Kumar was given a $1 million bonus for those efforts
Mr. Kumar earned several million dollars a year as a senior executive at McKinsey. He had a grueling work schedule, traveling some 30,000 miles a month, consulting for corporate clients across the globe.
In 2003, Mr. Rajaratnam, who was fast on his way to becoming a billionaire, told his business school classmate that he was underpaid.
Kumar said he was told by Mr. Rajaratnam,
“You work hard, travel a lot; people made fortunes while you were away and you deserve more.”
Mr. Kumar would later depict himself as a reluctant felon, initially rejecting Mr. Rajaratnam’s offer. But after they devised an elaborate scheme to hide the payments — opening a Swiss bank account and then transferring funds from it into a Galleon account in the name of Mr. Kumar’s housekeeper — he began moonlighting as a private consultant to Mr. Rajaratnam.
At first, Mr. Rajaratnam asked Mr. Kumar general “big picture” questions about the technology industry but soon became “quite specific,” pressing him for details about individual companies, Mr. Kumar said.
Says Kumar,
“Mr. Rajaratnam kept asking for that information, and I felt that I owed him something, given how much money he was paying me.”
After Mr. Rajaratnam told Mr. Kumar that his insights were not detailed enough and had little value to him, he suggested an alternative arrangement where they would share trading profits when Mr. Kumar’s tips made money. Mr. Kumar rejected this proposal, preferring a straight-up fee similar to how he was paid for his work at McKinsey.
Mr. Kumar testified,
“I was a consultant at heart. That seemed like an even bigger crime to me.”
In 2006, Mr. Kumar agreed to another compensation scheme: Mr. Rajaratnam would pay him a year-end bonus based on his annual performance. Mr. Kumar proved his worth that year, providing him with details about secret merger negotiations between Advanced Micro Devices and ATI Technologies.
When the companies announced the deal in July 2006, Mr. Kumar got a call from Mr. Rajaratnam,
“That was fantastic. We’re all cheering you at the office right now. You’re a star. You’re a hero.”
Mr. Kumar’s tip about the deal helped Mr. Rajaratnam generate about $23 million in profit buying ATI stock, his single largest illegal gain.
In December, Mr. Rajaratnam told Mr. Kumar that Galleon was paying out big year-end bonuses and said,
“'I want to give you $1 million'. I almost fell off my chair.”
The insider-trading probe prompted the firm to tighten internal security involving confidential information, a former McKinsey official said. McKinsey declined to comment.
The Motives Behind Raj Gupta's Association With Raj Rajaratnam
A Kolkata, India, native who later moved to Delhi, Mr. Gupta arrived in the U.S. to attend Harvard Business School. His character was shaped by the death of his parents in his teenage years, said Mr. Julka, the childhood friend.
According to Mr. Julka, who owns an information-technology firm in Cleveland.
"Suddenly, he became the head of the family. It made him very compassionate. He was a lot more mature than all of us."
Mr. Gupta set up the American India Foundation and also was the founding chairman of the Indian School of Business in Hyderabad. He was viewed as a master networker, establishing relationships with former President Bill Clinton, Microsoft Corp. founder Bill Gates, and Hank Paulson, the former Goldman CEO and U.S. Treasury secretary. Mr. Gupta and his wife were among the list of invited attendees to President Barack Obama's first state dinner, according to list released by the White House.
The ability to cultivate contacts, along with their South Asian heritage, was a quality he shared with Mr. Rajaratnam, 54, a Sri Lanka native. They shared a mutual friend in Mr. Kumar, a McKinsey consultant who later testified for the U.S. in Mr. Rajaratnam's trial.
Messrs. Gupta and Rajaratnam had vastly different personal styles. The square-jawed Mr. Gupta was quiet and distinguished; the portly Mr. Rajaratnam was rougher around edges, and enjoyed practical jokes, people who know them said. Though Mr. Gupta had a more public persona, Mr. Rajaratnam was far richer, people familiar with the matter said.
They established a rapport, according to associates, and Mr. Gupta often would have lunch with Mr. Rajaratnam in the hedge-fund manager's office, ordering in Indian or Chinese food.
Mr. Gupta's stature and power in business circles far exceeded his personal wealth, which paled next to Mr. Rajaratnam's $1 billion net worth, people close to the situation say. Starting around 2003, he hoped to enter super-wealthy circles through his investments with Mr. Rajaratnam, people close to the situation say. He invested more than $2 million in two of Galleon's offshore hedge funds, one named "Captains" and the other named "Buccaneers," according to the SEC complaint.
Both Mr. Rajaratnam and Mr. Gupta invested "many millions" in the GB Voyager Multi-Strategy Fund, a master fund that invested in numerous Galleon hedge funds. Mr. Gupta saw the venture as a springboard for more business ventures with Mr. Rajaratnam, according to the SEC complaint.
The two formed another fund, the Voyager Special Opportunity Fund, and they signed up a number of South Asian business leaders to invest. They also organized Taj Capital Partners, later known as the New Silk Route fund.
It was in the ensuing years that Mr. Gupta allegedly leaked Mr. Rajaratnam inside information.
After the May conviction of Mr. Rajaratnam, friends say, Mr. Gupta seemed worried and nervous about his own future. Mr. Julka recalled.
"He was distraught. He seemed upset."
In a visit to Mr. Gupta's home in August, Mr. Julka said he congratulated him on the SEC's decision at the time to drop its civil case.
Mr. Gupta told him it was "too early" for kudos, Mr. Julka said, adding that the U.S. has "a right to indict me still."
COMMENTARY: Everytime I write or comment on any articles about former Galleon Group head Raj Rajaratnam, I find a field strewn with the decaying bodies of his victims, who willingly provided him directly or indirectly, insider information that gained him millions in profits.
The insider trading culture is really what drives the big money bets on Wall Street. It's the idea of winning, no matter what rules or laws are broken. Money acts like a powerful aphrodisiac, and people do crazy things when they fall under its spell. Raj Rajaratnam was a master at dispensing this aphrodisiac nectar by convincing people to work for him so they could feed him insider information.
What I find most interesting is that this lust to make money, and as much of it as possible, as fast as possible, is driven by some very smart and savvy people, who should know better. They are well educated, schooled in business law, SEC regulations, and many of them are graduates of Ivy League schools like Harvard, Yale and Wharton.
What I find ironic is that many of the insiders that fed insider information to Raj Rajaratnam's Galleon Group are from Harvard. Harvard's motto is Veritas, which is Greek for Truth. That's what I call ironic, don't you think?
Rajat Gupta, former McKinsey & Co CEO and Goldman Sachs director is being accused of providing insider trading information to Raj Rajaratnam, the disgraced and convicted head of Galleon Group
Allegations Against Raj Gupta
Raj Gupta, the former McKinsey & Co executive and Goldman Sachs board member was charged for supplying Raj Rajaratnam insider trading information on March 1, 2011.
After Gupta told Raj Rajaratnam that Berkshire Hathaway was going to invest in Goldman before it was public, Raj made $1 million trading on Goldman stock - in ONE day.
He allegedly gave information about Goldman to Galleon hedge fund manager Rajaratnam at least 3 other times.
Galleon Group's founder Raj Rajaratnam was escorted by FBI agents in New York on October 16, 2009 in what authorities are calling the largest insider-trading case against a hedge fund.
The insider trading trial against Raj Rajaratnam began on March 8, 2011. On May 11, 2011, Raj Rajaratnam was found guilty on all 14 counts of insider trading. The judge said sentencing was planned for the month of September 2011, but dragged on for months because Mr. Rajaratnam's attorney's argued for a shorter prison sentence due to Mr. Rajaratnam's health issues (he has diabetes). On October 13, 2011, Raj Rajaratnam was finally sentenced to 11 years in prison, one of the longest-ever sentences for an insider case.
Here's what the SEC alleges Gupta told Rajaratnam about Goldman Sachs:
Gupta apparently gave information about a call on which Lloyd Blankfein had told him that Goldman Sachs second quarter returns in 2008 would be better than expected. After Gupta called him, Raj bought 5,500 of June $170 call options on June 11 (the share price opened at $167 that day) and on June 11 and 12th bought over 350,000 shares. He sold the call option on June 16th and earned $7 million. He sold more on June 17th and earned $6.6 million.
He also reportedly gave information to Rajaratnam about Goldman's 4th quarter earnings in 2008 -- telling him that Goldman would earn less than analyst-expected $2.50 per share. He told Raj that Goldman would actually lose $2 per share -- just 23 seconds after hanging up with the Board. Rajaratnam avoided losses of $3 million.
Gupta gave information to Rajaratnam about Goldman becoming a bank holding company. On September 22 2008, just after he found out that the Board approved Goldman Sachs becoming a Bank Holding Company, Gupta told Rajaratnam, who then bought 80,000 shares.
Gupta told Rajaratnam that Berkshire Hathaway would make a $5 billion investment in Goldman before he did in September 2008. On September 23 2008, Rajaratnam got another call from Gupta. Gupta told him that Berkshire would invest, and Galleon purchased another 175,000 Goldman shares.
On September 24th, Raj liquidated the Goldman shares he bought because of the Berkshire investment. He made $900,000.
In total, Raj's total gains from the Gupta information (about Goldman) were over $13.6 million.
Here's what the SEC alleges Gupta told Raj about Proctor and Gamble:
Gupta may have told Rajaratnam on January 29, 2009 that P&G would report sales growth lower than expected. All the SEC knows is that Gupta called him on January 29th, that Rajaratnam sold short 180,000 shares of P&G on the same day (he earned $570,000) and that Raj told someone he got inside information from someone on the board so that they could trade on the information too.
Gupta is denied everything, of course.
Gary Naftalis, Gupta's lawyer said that the "SEC's allegations are totally baseless," and his client "has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder."
The SEC's press release of March 1,2011 can be found HERE.
What The Raj Rajaratnam Insider Trading Trial Disclosed About Raj Gupta
On April 13, 2011, jurors involved in the insider-trading case against Galleon Group's Raj Rajaratnam in a Manhattan federal courtroom heard an earful about Rajat Gupta, the former head of McKinsey.
First, they listened to a wiretap on which Gupta confided to Rajaratnam that the Goldman Sachs board, on which he sat, discussed acquiring Wachovia or American International Group (AIG).
Second, the jury watched Goldman Sachs Chief Executive Officer Lloyd Blankfein testify that Gupta violated the company's ethics code for directors for disclosing confidential information to Rajaratnam.
During the trial federal prosecutors called Gupta an unindicted co-conspirator, and the Securities and Exchange Commission filed an administrative action against Gupta for his alleged role in the scandal. Still, nothing explains why Gupta, once one of the world's most trusted advisers to companies, would risk his reputation by sharing confidential information with a hedge fund manager.
After stepping down from the top job at McKinsey, the financial markets were booming, and private equity and hedge fund managers were New York's new elite, so Raj Gupta pursued a second career as a dealmaker. Many of the CEOs he had counseled were finding positions in this lucrative world. Gupta figured he could leverage his own contacts and add to his wealth, says a senior executive at a company where Gupta was a director until March 2011.
He loved gathering Wall Street rumors and analyzing them in his professorial way, the executive says. He liked the idea of doing 8 or 10 deals a year—making introductions among executives and investors, and leaving the math and paperwork to others, says the executive, who didn't want to be named because his conversations with Gupta were private. That's also how Rajaratnam saw him. Rajaratnam told Gupta in a July 2008 wiretapped phone conversation submitted at the trial.
"Your value-added is not to do cash flows. Your value-added is to bring people together, deals together, at the right time to make the call."
Several wiretapped conversations indicate Gupta coveted a role at KKR, one of the largest private equity firms. He knew Henry Kravis, KKR's co-chairman, from his philanthropic work and through some clients. Rajaratnam told Anil Kumar, a McKinsey consultant at the time who has pled guilty to insider trading, in an Aug. 15, 2008, taped call.
"He's enamored with Kravis, and I think he wants to be in that circle. That's a billionaire's circle. … I think here he sees an opportunity to make $100 million over the next 5 or 10 years without doing a lot of work."
Gupta began doing business with a group of men who, like him, had connections in the U.S. and India: Parag Saxena, Victor Menezes, and Rajaratnam. All three had had trouble with the SEC. In 2006 he co-founded a fund called New Silk Route Partners with Saxena and Menezes. Rajaratnam contributed $50 million to the fund, which eventually raised $1.3 billion to invest in ventures in India and other emerging countries.
Some worried about Gupta. Bala Balachandran, a business professor who has known Gupta for three decades, said in an interview last year.
"I told him once, 'If you are in a herd of pigs, you'll also smell like a pig,' "
In 2007, Gupta joined Rajaratnam and a third man to form the GB Voyager Multi-Strategy Fund, contributing $10 million of his own. The $40 million fund "invested in numerous Galleon hedge funds, including those that traded on Gupta's illegal tips," according to the SEC's complaint. Gupta asked Rajaratnam for a 10 percent stake in the Galleon International Fund in exchange for attracting investors, according to a May 28, 2008, wiretapped call between Rajaratnam and Kumar. He never got that, according to testimony at Rajaratnam's trial.
Gupta's dealmaking career never took off. The New Silk Route fund hasn't turned a profit on any of the investments it has made so far, according to Venture Intelligence, a Chennai-based research firm. The Voyager Fund was wiped out in the 2008 financial crisis, costing Gupta his $10 million investment, according to his attorney.
Shoba Narayan, an author who was part of that circle through her husband, a former Morgan Stanley (MS) banker says.
"I think Rajat Gupta got caught in that whole New York milieu where people measure themselves by their net worth, the size of their bonus, or square footage of their house. If he'd lived away from that incestuous Wall Street set, perhaps none of this would have happened."
The man CEOs turned to for his expertise and sound judgment made questionable decisions as he invested with Raj Rajaratnam, the co-founder of the hedge fund Galleon Group. The SEC has accused him of passing confidential information on earnings at P&G and Goldman Sachs, and Warren Buffett's $5 billion investment in Goldman Sachs. Those tips generated more than $17 million in illicit profits or avoided losses for Galleon, the SEC says. Gupta's lawyer, Gary Naftalis, calls those allegations "totally baseless."
Gupta's Educational and Professional Background
The son of a man who fought for India's independence, Raj Gupta was orphaned as a teenager. After graduating from high school, Gupta ranked in the top 20 applicants among hundreds of thousands of Indian youth who took the entrance examination in 1966 for a spot at the elite Indian Institute of Technology in Delhi, according to an interview he gave to the “Economic Times” of India when he became head of McKinsey. He worked his way from lower-middle-class roots in Kolkata to Harvard Business School.
Harvard Business School academic workload was unrelenting for most but not for Gupta, says John Carberry, who lived in the same Boston dormitory and was Gupta’s friend. Carberry, who’s now president of Wellesley, Massachusetts-based F.L. Putnam Investment Management Co says.
“Sometimes we’d still be doing cases at 2 a.m., but he’d be done by 11 p.m. and lying on his bed, watching Johnny Carson, but if you had problems with your schoolwork, he’d always help.”
At a time when students at Harvard Business School were overwhelmingly white, Gupta stood out culturally and intellectually, Carberry says.
“Gupta was unassuming and humble. When he spoke in class, though, everyone put their pencils down and listened. He was the smartest guy in my section, just brilliant.”
Gupta became a Baker Scholar, a distinction earned by the top 5 percent of students in his graduating class in 1973. With his Master of Business Administration degree, he applied for a spot with McKinsey.
Even with his stellar academic record, the firm turned him down. Walter Salmon, one of Gupta’s professors who had McKinsey connections, wrote Gupta a recommendation, and the consulting firm decided to hire him in New York.
Gupta advanced steadily, becoming a McKinsey partner in 1980 and moving to Copenhagen the following year. In 1984, Gupta began overseeing all of the firm’s business in Scandinavia. He moved to McKinsey’s Chicago office in 1987 and became head there in 1989. The office served many of the region’s manufacturing and consumer products companies.
His big leap came in 1994 when McKinsey held elections for a new leader. Gupta won over two other candidates, becoming the first non-U.S.-born managing director of the firm. Raj Gupta, 62, Led McKinsey & Co from 1994 to 2003, serving for three three-year terms, the maximum under McKinsey's rules.
James Kilts, a former CEO of Nabisco Group Holdings Corp. and Gillette Co., says he was impressed when he first met Gupta in Chicago in the late 1980s. Kilts was then an executive atKraft Foods Inc. (KFT), and Gupta advised him about strategy for cheese products.
He sat on the boards of some of the largest multinationals, including American Airlines, Procter & Gamble and Goldman Sachs. He also sat on the boards of the Rockefeller Foundation and Bill and Melinda Gates He raised millions for charity, hung out with the Prime Minister of India, and attended President Barack Obama's first state dinner at the White House. He divided his time between a waterfront home in Westport, Conn., that once belonged to J.C. Penney, a Manhattan apartment, and a Florida getaway.
Raj Gupta's five acre waterfront estate located in Westport, Connecticut
Gupta Surrendered and Arrested
Today, Wednesday, October 26, 2011, Rajat Gupta, was taken into custody by the FBI on criminal charges related to his hedge fund manager friend Raj Rajaratnam, the central figure in a U.S. crackdown on insider trading.
Rajat Gupta, the most high-ranking corporate executive to become embroiled in a push by the government to root out insider trading, surrendered to the FBI on criminal charges of leaking confidential information. Michael Rothfeld joins the Markets Hub to discuss.
In a six-count indictment, federal prosecutors in Manhattan alleged that Mr. Gupta, the former head of global consulting firm McKinsey & Co., leaked details about the companies' financial condition and an investment by Warren Buffet's Berkshire Hathaway Inc. to former hedge-fund titan Raj Rajaratnam. The Galleon Group founder was sentenced earlier this month to serve 11 years in prison for insider trading.
The government is expected to argue that the relationship between the two men, who socialized and invested together, is emblematic of the back-scratching that pervades the corporate world and can sometimes veer into insider trading.
In the indictment, prosecutors alleged that Mr. Gupta invested in at least two Galleon offshore funds and those investments had a value of $2.4 milliion in March 2005. He also allegedly invested $10 million in an investment fund called Voyager Capital Partners along with Mr. Rajartnam, owning a 20% equity interest, prosecutors said.
Preet Bharara, the U.S. attorney in Manhattan said.
"Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders. As alleged, he broke that trust and instead became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam."
Janice K. Fedarcyk, the FBI's assistant director-in-charge and head of the New York FBI office said.
"The conduct alleged is not an inadvertent slip of the tongue by Mr. Gupta. His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of thirty-nine seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
He entered his plea in an afternoon hearing. Bail was set at $10 million, to be secured by Mr. Gupta's Connecticut home. He was also ordered to surrender his passport.
A spokesman for Gupta's lawyer, Gary Naftalis, declined immediate comment on his client's arrest.
On Tuesday night, October 25, 2011, when a source briefed on the case said Gupta would be arrested, Naftalis said in a statement that his client did nothing wrong.
Naftalis said.
"Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."
An FBI spokesman said Gupta, 62, surrendered to agents at his home in Connecticut and he was driven to the New York FBI office, where he was placed under formal arrest at 8.15 a.m. EDT (1215 GMT).
Gupta is expected to appear in court later in the day on charges related to the Rajaratnam insider trading case, the spokesman said. Prosecutors said at Rajaratnam's trial that in 2008 Gupta leaked information about Goldman that he learned from the bank's board meetings.
Rajaratnam was convicted in May by a New York federal jury after a two-month-long trial. On October 13, a judge sentenced him to 11 years in prison, the longest recorded for insider trading.
Possible Raj Gupta Case Defense Strategy
The insider trading trial of Raj Rajaratnam provided some insight into the big discussion points that will come up during the criminal trial of Rajat Gupta.
When he took the stand to testify in the Rajaratnam trial, Goldman Sachs CEO Lloyd Blankfein had an interesting exchange with Rajaratnam's defense lawyer, John Dowd, that might shed some light on one point.
Rajaratnam did not cooperate with the prosecutors who are bringing charges against Rajat Gupta (he was offered a plea deal. Rajaratnam told Newsweek that prosecutors were particularly interested in Rajaratnam's strategic position close to Raj Gupta. They asked him to wear a wire and tape conversations with Gupta, but Rajaratnam said no, acc6rding to Rajaratnam.), but part of his defense suggested that Goldman Sachs might be able to communicate with "tier 1" clients, like Rajaratnam, about big upcoming deals that important clients have exposure to.
When CEO Lloyd Blankfein took the stand to testify, he explained the difference between what Raj Gupta did wrong, and what Goldman Sachs COO Gary Cohn did right, as far as giving information to tier 1 clients.
What Cohn did right was to keep one of Goldman's top clients abreast of matters that affect the firm's business on a regular basis. This might well be part of Cohn's job, to inform clients.
What the Rajaratnam defense tried to establish is that the discussion along the lines of what happened during a board meeting is legitimate for a "Tier 1" client, and that it was a standard inquiry in advance of Rajaratnam's upcoming meeting with Gary Cohn.
Blankfein explained.
"We rank clients, based on who's "more important or less important. I'm not entirely sure what 'Tier 1' means myself, but I know that we rank clients."
Rajaratnam defense attorney John Dowd asked Blankfein if he spoke to such important clients and kept them informed.
Of course they do, and in fact Blankfein visited the offices of Galleon "a long time ago," when he was a Senior Vice President at the firm.
How the testimony helps the Raj Gupta defense teams case is this:
The prosecution is trying to prove that the information that Raj Gupta passed on to Raj Rajaratnam was material nonpublic information. The defense suggests that it's only "confidential," information because it was discussed in the meeting, and not material nonpublic because:
At least one news article reported on the rumor of Goldman's buying Wachovia and;
People were talking about it happening, possibly including Cohn, who might have discussed the report with Galleon during or even before visiting the Galleon offices.
And thus a seed of suspicion was planted in the minds of the jury. But a moment later, we found out there was nothing there.
During the Rajaratnam trial, defense attorney Dowd asked Blankfein.
"And you're not suggesting Gary Cohn did anything wrong, are you?"
Blankfein answered.
"No."
In the following video, Douglas Burns, a formal federal prosecutor, speaks with Sara Eisen on Bloomberg Television's "Inside Track" about Rajat Gupta, the former Goldman Sachs Group Inc. director, who has been charged with feeding inside information to Galleon Group LLC's Raj Rajaratnam. Mr. Douglas provides some very interestuing insights into how the prosecution and defense will present their arguments in the Raj Gupta case.
Click To View The Video
Mr. Burns brings up two very interesting points:
The defense will argue that Mr. Gupta did not benefited financially from the information Mr. Gupta provided Mr. Rajaratnam so there is no "quid pro quo". In an article dated October 26, 2011 in The Wall Street Journal, the issue of no "quid pro quo" is discussed. The idea is that absent some personal gain, there has been no breach of duty to stockholders. But in a previous court case, it defined “benefit” broadly to include “a pecuniary gain or a reputational benefit that will translate into future earnings.” This may present an opening for the defense to clear Mr. Gupta of the alledged insider information charges, but the court could just as easily rule against Mr. Gupta considering the broader definition of "benefit."
The prosecution will argue that the benefit to Mr. Gupta does not need to be financial (see above with regarding the broader definition of "benefit" in "quid pro quo" cases, because insider information was stilled passed along by Mr. Gupta to Mr. Rajaratnam, and the benefit to Mr. Gupta was to gain entry into the "billionaire's club" he so long coveted through his long association with Mr. Rajaratnam.
COMMENTARY: I just love these high-profile insider trading cases, because they are so difficult to prove, but the tapes of telephone conversations between Raj Gupta and Raj Rajaratnam, and the testimony given by Goldman Sach's Lloyd Blankfein, appear to be quite damaging.
The very fact that Raj Gupta had a lengthy association with Raj Rajaratnam going as far back to the 1990's, and that Raj Rajaratnam benefited financially to the tune of $16 million from insider information about Goldman Sachs and Procter & Gamble furnished by Mr Gupta, is pretty hard to deny.
I found it surprising that Raj Rajaratnam refused to cooperate with prosecutor's during his trial, turned down a plea deal to finger Raj Gupta and refused to wear a wire to record further telephone calls with Raj Gupta, makes you wonder if Raj Rajaratnam is doing this out of spite or is it to protect Raj Gupta and make it more difficult for the prosecution to convict Raj Gupta.
This is going to be a very interesting case, and I intend to follow and cover it in my blog just like I did the Raj Rajaratnam and Danielle Chiesi trials.
Galleon hedge fund founder Raj Rajaratnam departs Manhattan Federal Court in New York May 11, 2011. Sentenced today, Thursday, October 13, 2011 to a term of 11 years in prison.
Raj Rajaratnam, the face of the biggest trading scandal in a generation, was sentenced to 11 years in prison, one of the longest-ever handed down for an insider case.
Prosecutors had sought a sentence of 19 years and seven months to 24 years and five months behind bars for the former hedge-fund titan. Mr. Rajaratnam's lawyers—citing health problems, among other factors—had been urging the judge to consider a much more lenient sentencing range of 6½ years to 8 years and 1 month.
U.S. District Judge Richard Holwell said in imposing sentence.
"His crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated."
The judge also ordered Mr. Rajaratnam to pay a $10 million fine.
In the following video, former Assistant U.S. Attorney Jeffrey Smith and Andrew Stoltmann, a Chicago lawyer who represents investors in securities litigation, talk about Raj Rajaratnam's prison sentence.
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Former Assistant U.S. Attorney Jeffrey Smith and Andrew Stoltmann, a Chicago lawyer who represents investors in securities litigation, talk about Raj Rajaratnam's prison sentence. The Galleon Group LLC co-founder, whom prosecutors called "the modern face of illegal insider trading," was sentenced to 11 years in prison, one of the longest terms ever for insider trading. Smith and Stoltmann talk with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
In the following video reporters interview the notorious Danielle Chiesi and her attorney Alan Kaufmann following her 30 month prison sentence on July 20, 2011. Checkout that pink dress and smile. What a shameless airhead if there ever was. I wonder if she will be smiling and laughing once she is prancing about in the general prison population and one of those bulldikes gets ahold of her.
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On July 20, 2011, Danielle Chiesi and her lawyer, Alan Kaufman, spoke after her sentencing in New York. Chiesi, the former New Castle Funds LLC analyst who was heard on a federal wiretap passing secret tips to Galleon Group LLC co-founder Raj Rajaratname, was sentenced to 30 months in prison.
The 54-year-old co-founder of Galleon Group, who was convicted of five counts of conspiracy and nine counts of insider trading in May, was accused by prosecutors of being at the center of the one of the biggest insider-trading schemes ever unearthed. Mr. Rajaratnam, who wore a dark suit with a blue-and-silver striped tie at his sentencing hearing, is the highest-profile person to be prosecuted so far as part of a broad U.S. government crackdown.
"He is arguably the most egregious insider trader to face sentencing in a courthouse in the U.S.," Assistant U.S. Attorney Reed Brodsky said during this morning's hearing. He again called Mr. Rajaratnam the "modern face of insider trading."
Mr. Rajaratnam's sentence will likely set "the upper threshold" for punishment of insider trading, Mr. Brodsky said. Future defendants' conduct will likely not rise to the level of Mr. Rajaratnam, Mr. Brodsky added.
Legal experts said the one-time hedge-fund titan's prison term could very well exceed 10 years, which would be the longest sentence imposed for insider trading in New York in the past two decades.
Mr. Rajaratnam's lawyers have asked for a lesser sentence because of an undisclosed medical condition he is suffering. Defense lawyer Terence Lynam said during today's sentencing hearing that "Mr. Rajaratnam is suffering from a progressive, degenerative disease." He has been hospitalized several times this year, Mr. Lynam said.
"Any lengthy term of imprisonment will surely shorten his life," Mr. Lynam said.
Federal prosecutors in Manhattan had accused Mr. Rajaratnam of persuading fellow hedge-fund traders, industry consultants and even corporate directors to provide him with confidential corporate information as he searched for an "edge" over the investing public. Prosecutors alleged Mr. Rajaratnam made profits or avoided losses of $72 million through his trading.
However, his lawyers have argued only about $7.46 million in alleged gains should be attributed to him personally. They have argued that the government has improperly inflated his potential guidelines range by including gains by Galleon, rather than profits he personally recognized, in the alleged scheme.
In arguing for leniency, Mr. Lynam on Thursday cited Mr. Rajaratnam's charitable giving and work with a Harlem-based youth organization. "Raj Rajaratnam has attempted to make the world a better place," Mr. Lynam said. "If there is a ledger in one's life, he should have some credit to draw upon in that ledger now that things have gone bad."
He also argued that the sentence the government is seeking is comparable only to murder and greater than other violent crimes. "The sentence that the government seeks would create such disparity," Mr. Lynam said. "There's no precedent for it."
Mr. Brodsky, the prosecutor, argued that insider trading wasn't a victimless crime. "Public companies suffered greatly because their inside information was stolen," Mr. Brodsky said during Thursday's hearing.
In any case, Mr. Rajaratnam is likely to have to spend some of his time in a low-security prison at a minimum, lawyers said. Sentencing length dictates in part the level of security for imprisonment. Mr. Rajaratnam won't qualify for a minimum-security prison if he has 10 years or more remaining on his sentence. In that case, he would likely go to a low-security prison, but he could be assigned to a medium-security prison if he were to receive 20 years or more.
Thursday's sentencing represents a dramatic fall for Mr. Rajaratnam from the heights of the hedge-fund world. A native of Sri Lanka, Mr. Rajaratnam received a master's of business administration from the prestigious Wharton School of the University of Pennsylvania and rose to become director of research and later president and chief operating officer of Wall Street investment bank Needham & Co.
A father of three, Mr. Rajaratnam left Needham at the end of 1996 and formed his own hedge-fund business, Galleon. By the time the government's investigation kicked into high gear in 2008, Mr. Rajaratnam's company was managing billions of dollars in assets. The fund company closed following Mr. Rajaratnam's arrest in 2009.
COMMENTARY: The punk deserved the full 19+ year prison term, but as often is the case, if you are rich and powerful, you can hire the best attorneys and they will either get you off the hook or you will be sentenced to a lighter term in prison. I still hope he ends up in a maximum security prison where the prison thugs can get their hands on him. I know that I spoil my fans rotten, but this news just broke, but I will post video and pics following the sentencing as I get them.
UPDATE: Just posted some new videos of that fat ass indian dude Raj Rajaratnam on the day of the sentencing. He should've gotten the full 19+years.
When disgraced hedge-fund titan Raj Rajaratnam is sentenced in federal court Thursday, he will come up against a hard and unavoidable truth: Insider traders are facing considerably harsher sentences than they did in the past.
Mr. Rajaratnam, Wall Street's latest symbol of perfidy and excess, is expected to receive among the longest-ever U.S. prison terms for his role in one of the biggest U.S. insider-trading cases ever, lawyers say.
Raj Rajaratnam, billionaire founder of the Galleon Group, a major hedge fund, is led in handcuffs from FBI headquarters in New York Friday, Oct.16, 2009. Rajaratnam was charged with insider trading in the stock of several companies including Hilton, Clearwire, and Google. Louis Lanzano/AP
A higher percentage of those found guilty of such crimes are receiving significant time behind bars than in the past, according to a Wall Street Journal analysis. In the past two years, defendants sent to prison on insider-trading charges in New York federal courts have received a median sentence of about 2½ years, according to the Journal analysis of white-collar sentencing data from court records and archives involving 108 cases. Just Wednesday, hedge-fund trader Michael Kimelman was sentenced to 2½ years in prison for inside trading.
Raj Rajaratnam, founder of hedge fund Galleon Group, was convicted of 14 counts of securities fraud and conspiracy in May. Prosecutors are seeking a sentence of 19 years and seven months to 24 years and five months in prison in what they said was a "brazen" and "arrogant" scheme to corrupt friends and corporate insiders to leak nonpublic information about their companies. (Photo: Brendan McDermid/Reuters)
Danielle Chiesi, a former consultant to hedge-fund firm New Castle Fund, was sentenced in July to 30 months in prison, for sharing confidential tips with her boss and other portfolio managers, including Galleon Group's Mr. Rajaratnam. Ms. Chiesi, a former beauty queen, allegedly used her powerful business contacts to obtain inside information about International Business Machines Corp., Advanced Micro Devices Inc. and other companies. She pleaded guilty to three counts of conspiracy to commit securities fraud. (Photo: Rick Maiman/Bloomberg)
Samuel Waksal, the founder of ImClone Systems Inc., was sentenced to seven years and three months in prison in 2003 after he pleaded guilty to telling family members and others to sell their shares in the biotech firm after he learned the Food and Drug Administration had rejected its cancer drug, Erbitux. He spent about five years in prison and was released in 2009. Homemaking maven Martha Stewart was also convicted of obstruction of justice related to the sale of her ImClone stake in 2001 after receiving a tip from her broker, who was also Mr. Waksal's broker. She served five months in prison. (Photo: Spencer Platt/Getty Images)
Michael Milken, the former head of Drexel Burnham Lambert Inc.'s junk-bond department, was sentenced to 10 years in prison after he pleaded guilty in 1990 to six felony violations of federal securities laws, but not insider trading, in an infamous insider-trading probe. Mr. Milken's sentence was later reduced after he agreed to cooperate with prosecutors and he served 22 months in prison. (Photo: Gerald Herbert/Associated Press)
For a list of some recent and infamous cases involving insider trading Click HERE.
Those sentences compare with a median sentence of 18 months in the past decade and 11½ months from 1993 to 1999, according to the Journal analysis.
Meanwhile, a higher percentage of guilty insider-trading defendants on Wall Street and in corporate America have been incarcerated in recent years, according to the analysis. In the past two years, 79% of defendants sentenced in New York have been sent to prison, compared with 59% in the 2000s and less than half from 1993 to 1999, the analysis shows.
Of course, every case is based on a different set of facts, so it can be difficult to make a direct comparison between sentences. But prosecutors and white-collar lawyers view the lengthier insider-trading sentences these days as an additional deterrent amid one of the largest government crackdowns against illicit trading ever on Wall Street.
The stiffer insider-trading sentences come as prosecutors have increasingly used techniques, such as wiretapping, that once were employed mostly for drug or terrorism cases. That tactic has led to evidence, including recorded calls, that has been more difficult for defendants to refute. And it has led to broader alleged rings of inside traders.
At the same time, federal sentencing guidelines have placed a sharper focus in recent years on the alleged gains from a white-collar defendant's crimes, lawyers said.
The guidelines—which no longer are mandatory following a 2005 U.S. Supreme Court decision—continue to influence many judges, lawyers say.
In Mr. Rajaratnam's case, federal prosecutors in Manhattan are calling for a prison sentence of from 19 years and seven months to 24 years and five months after the 54-year-old founder of Galleon Group was convicted earlier this year in what prosecutors called a "brazen," "arrogant" and "pervasive" insider-trading scheme that the government says corrupted corporate directors, friends and former classmates.
Mr. Rajaratnam's lawyers have argued that U.S. District Judge Richard Holwell shouldn't count all of the alleged illicit profits or losses avoided by Galleon against him at sentencing and that he should receive leniency for an undisclosed medical condition.
Even if Judge Holwell accepts that argument, Mr. Rajaratnam's prison term could exceed 10 years, legal experts said, the longest sentence imposed for insider trading in New York in the past two decades.
Representatives for Mr. Rajaratnam and the Manhattan U.S. attorney's office declined to comment.
By comparison, the median prison sentence for robbery was five years and three months in this fiscal year's first three quarters ending in June, according to the U.S. Sentencing Commission. The median sentence for kidnapping during that period, according to the commission's numbers, was 19 years and seven months, the low end of the government's range for Mr. Rajaratnam.
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Defendants with 10 years or more remaining on their sentences are barred from the "minimum-security" prison camps typically associated with white-collar defendants. So, in addition to a lengthy sentence, Mr. Rajaratnam is likely to serve some of his prison term in a "low-security" prison, lawyers said, or one with higher security.
And since parole has been abolished in the federal system, white-collar defendants must serve 85% of their prison time. Sentences can be reduced to that point based on good behavior behind bars.
"The idea of 'Club Fed' has gone by the wayside," said Todd A. Bussert, a Connecticut lawyer and prison specialist.
Mr. Rajaratnam's case is the culmination of a broad government effort to root out improper sharing of nonpublic information among corrupt corporate insiders and Wall Street professionals. Of 54 hedge-fund managers and others charged since 2009, 50 have pleaded guilty or been convicted of criminal charges.
Mr. Rajaratnam's sentence also could foreshadow harsher prison terms for insider trading in the future, as politicians and prosecutors continue to push for tougher punishments for perpetrators of financial crimes, lawyers said.
The trading scandal at UBS will ensure that tough regulation on banks is here to stay. The combustible mix of greater regulation and economic uncertainty will shape the future of finance for decades, according to Francesco Guerrera on The News Hub.
Preet Bharara, the U.S. attorney in Manhattan, asked the U.S. Sentencing Commission earlier this year to consider additional factors that might drive the sentencing range higher for instances of "sophisticated insider-trading conduct" and for engaging in "a course or pattern of insider trading."
"Insider trading has become increasingly complex and difficult to detect," said Mr. Bharara in testimony before the sentencing commission in February.
Still, some defense lawyers believe the harsher insider-trading penalties often don't fit the crimes.
"You have to ruin lots of people's lives to justify that kind of punishment," said Ellen Brotman, a white-collar defense lawyer at Montgomery, McCracken, Walker & Rhoads LLP in New York. "You have to kill people or decimate people's lives."
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In the past, insider trading resulted in little prison time except in the most brazen cases. Half of 84 defendants sentenced for insider trading in the Southern and Eastern Districts of New York from 1993 to 2009 received prison terms of three months or less, according to the Journal analysis. In the past two years, however, half the 24 defendants sentenced in New York for insider trading received prison terms of two years or more.
For example, Zvi Goffer, a former Galleon trader, was sentenced to 10 years in prison in September for insider trading; his brother received a three-year prison term last week.
In an infamous insider-trading investigation, Michael Milken, the former head of Drexel Burnham Lambert Inc.'s "junk"-bond department, pleaded guilty in 1990 to six felony violations of federal securities laws, but not insider trading. He was sentenced to 10 years in prison, but that sentence was later reduced after he agreed to cooperate with prosecutors in their investigation of others. He ultimately served just 22 months in prison.
Former arbitrager Ivan F. Boesky, who pleaded guilty to conspiracy, but not insider trading, in the probe in 1987, also served 22 months of a three-year sentence.
COMMENTARY: I've been covering the insider trading cases of Raj Rajaratnam, the billionaire founder of Gallon Group, and the notorious Danielle Chiesi, a trader cum-whore at New Castle Fund going back to October 2010.
If you look at the above Galleon's Web chart, you will find that insider trading was furnished by a number of informants, passed on to others, and several dozen individuals were implicated, charged and have been all fined and sentenced to lengthy prison terms. I am glad that the SEC has really started to investigate and put these punks in prison for lengthy prison terms.
I am looking forward to the sentencing for Mr. Rajaratnam who has pleaded for a reduced prison term and a cell at a country club prison. The Justice Department is asking for the maximum prison term of 19+years. Can hardly wait to see when Mr. Rajaratnam is handcuffed and escorted to a jail cell before being transferred to a maximum security federal penitentiary, where the hardcore criminals and rapists will be able to get their hands on his virgin ass and he becomes a "bitch" for one of the prison thugpins.
I will update this post just as soon as I hear what the final prison sentence is.
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