Rajat Gupta Charged With Insider Trading In US

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Rajat Gupta, one of the first Indians to breach the corporate glass ceiling in America has been charged with insider trading in the US.

American federal regulators have said the former Goldman Sachs board member provided confidential information to the central figure in a sweeping hedge fund probe.

The US Securities and Exchange Commission (SEC) announced the civil charges against Gupta on Tuesday. The agency said Gupta told Raj Rajaratnam, the founder of the Galleon Group hedge fund, that Warren Buffett’s Berkshire Hathaway planned to invest $5 billion in Goldman before it was publicly announced in September 2008, at the height of the financial crisis.

Gupta, an alumnus of IIT and Harvard Business School, is a former worldwide managing director of consultants McKinsey, the first person born outside the US to hold the coveted position.

Gupta is also charged with giving Rajaratnam confidential quarterly earnings information from Goldman and Procter & Gamble (P&G). Gupta served as a board member at Goldman from 2006 until last May. He was board member at P&G until voluntarily resigning on Tuesday, after the charges were announced.

“Gupta was honoured with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” SEC enforcement chief Robert Khuzami said in a statement.

The 62-year-old Gupta is one of the highest-ranking officials implicated in the US government’s wide-ranging insider trading probe.

Gupta was an investor in some of the Galleon hedge funds when he passed the information along, and he had other business interests with Rajaratnam that were potentially lucrative, the SEC said. Rajaratnam used the information from Gupta to illegally profit in hedge fund trades, the SEC said.

The information on Goldman made Rajaratnam’s funds $17 million richer, the SEC said. The P&G data created illegal profits of more than $570,000 for Galleon funds managed by others, the SEC said.

Gupta “has vigorously denied the SEC accusations that are being levelled at him and is stepping down in the interests of the company, to prevent any distraction to the P&G board and our business,” Paul Fox, P&G spokesperson in Cincinnati, said.

"Totally Bseless Charges, Lawyer Says

Gary Naftalis, a lawyer for Gupta, called the SEC allegations "totally baseless," and said his client had lost his entire $10 million investment in a Galleon fund that Rajaratnam managed, known as GB Voyager.

"Mr. Gupta has done nothing wrong," Naftalis said in a statement. "There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo."

Gupta sat on Goldman's board from November 2006 until last May and served on its corporate governance committee.

The Westport, Connecticut, resident had served on Procter & Gamble's board since 2007 before resigning on Tuesday.

"He's stepping down in the interest of the company, to prevent any distraction to the P&G board or our business," company spokesman Paul Fox said.

Rajaratnam also faces SEC civil charges. He has denied wrongdoing.

"This is simply an effort to destroy a favorable witness," John Dowd, a lawyer for Rajaratnam, said in a statement about the Gupta charges. "There is no case, absolutely none. No conversations, no benefit, no nothing. These are old friends and Mr. Gupta is a distinguished human being."

Goldman spokesman Ed Canaday declined to comment. Berkshire did not return a request for comment.

"It is striking the SEC refers to phone calls immediately before the trades," said Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC in Washington and a former SEC enforcement lawyer. "This suggests there was a witness, or that the SEC has more circumstantial evidence."

Gupta is one of a web of associates in Corporate America that investigators have said Rajaratnam used to learn advance tips about potentially market-moving news.

A Harvard Business School graduate, Gupta was previously worldwide managing director at McKinsey, where he worked for more than three decades.

The Gupta case "does not help in instilling confidence in Main Street investors that they're getting a fair shake at these multinational companies," said Michael Nix, co-chief investment officer at Greenwood Capital Associates LLC.

In trading on the New York Stock Exchange on Tuesday, Goldman fell $2.47, or 1.5 percent, to close at $161.31, while Procter & Gamble fell 31 cents, or 0.5 percent, to $62.74.