Fraud Seen In Sale of Albertsons

An executive with an advisory firm charged with selling the Albertsons chain tipped off a financial analyst that the massive deal was imminent, and the subsequent trading of Albertsons stock netted $3.6 million in illegal profits, according to a lawsuit filed in U.S. District Court here last week. Ramesh Chakrapani, a managing director in Blackstone Group's mergers and acquisitions practice,

NEW YORK — An executive with an advisory firm charged with selling the Albertsons chain tipped off a financial analyst that the massive deal was imminent, and the subsequent trading of Albertsons stock netted $3.6 million in illegal profits, according to a lawsuit filed in U.S. District Court here last week.

Ramesh Chakrapani, a managing director in Blackstone Group's mergers and acquisitions practice, was arrested and charged with conspiracy and securities fraud, according to the suit filed by federal authorities in U.S. District Court. Blackstone had been retained by Albertsons in 2005 to explore its strategic options and helped arrange its $17.4 billion sale to a consortium of Supervalu, CVS and private investors in January of 2006.

Chakrapani, 33, who most recently was working in Blackstone's London office, was suspended by the firm last week. “We are shocked by this alleged breach of the law and violation of our own compliance policies and ethical standards,” Peter Rose, a spokesman for Blackstone, told SN. “We are fully cooperating with the authorities in this investigation.”

According to the suit, the fraud occurred between the period when Albertsons rejected a takeover offer from the consortium in late December, and when a revised offer was accepted on Jan. 19. The final sale price of $17.4 billion valued Albertsons stock at $26.29 a share, or a 27% premium over its closing share price on Sept. 1.

Chakrapani is alleged to have made several phone calls and text messages to an unnamed co-conspirator shortly after the consortium held a private meeting to consider making a revised bid for Albertsons on Jan. 9. The co-conspirator, a financial analyst, subsequently purchased 5,600 shares of Albertsons in a personal account and 425 call options, which allow the purchaser the right to buy shares at a certain price, in an account for the co-conspirator's parents. The tippee's firm also purchased more than 600,000 shares.

Those holdings were liquidated soon after the deal was announced Jan. 19. The co-conspirator's firm reaped profits of around $3.5 million, while the call options generated around $73,000, the suit said. Less than a month later, the co-conspirator sold all shares from a personal account, netting $18,000.

The co-conspirator was not charged last week.

A biography of Chakrapani, pulled from Blackstone's website last week, identified him as having worked for the firm since 2001 and acknowledged he was “involved” in several transactions, including the Albertsons deal. He received a degree in economics and international studies from Yale University.

The New York Times last week quoted an internal memo from Steven Schwarzman, Blackstone's co-founder and chief executive officer, saying he was “saddened and outraged” at the actions of Chakrapani, whom he referred to as “a 30-year-old vice president” in a description thought to have meant to illustrate inexperience.

Other reports last week indicated Chakrapani played a support role in the negotiations for the Albertsons deal.

Blackstone is a global asset manager and financial advisory firm that has been involved in multiple supermarket deals. It managed about $116.3 billion in assets as of last September.

Chakrapani also assisted Jacksonville, Fla.-based Winn-Dixie Stores as a Blackstone representative when that retailer sold several stores and manufacturing assets in 2005.

The Albertsons sale was noted for its complexity, attracting both retailers interested in its best-performing stores and financial buyers keen on underperforming sites to extract real estate values. Advisors like Blackstone helped Albertsons align bidders into consortiums.