NEW YORK (Reuters) – Rajat Gupta, who sat on the boards of some of America’s most prestigious companies, was arrested and charged yesterday with being the “illegal eyes and ears” for his friend Raj Rajaratnam, the central figure in a broad US crackdown on insider trading at hedge funds.
Gupta, 62, a former director of Goldman Sachs Group Inc, Procter & Gamble and former global head of the McKinsey & Co consultancy, is the most prominent executive to face charges since Rajaratnam was arrested in October 2009. He faces five counts of securities fraud and one count of conspiracy tied to what prosecutors say were his leaks of Goldman and P&G secrets to Rajaratnam in 2008 and 2009.
Galleon Group hedge fund founder Rajaratnam, 54, was sentenced to 11 years in prison this month after an overwhelming insider-trading conviction. The Galleon case caught many of his associates on secretly recorded phone calls, and many were also been prosecuted.
Gupta’s lawyer, Gary Naftalis, said in a statement that there were legitimate reasons for communications between his client and Rajaratnam, including a $10 million investment that Gupta had in a fund managed by the Galleon founder. Gupta lost the entire amount, Naftalis said.
“We are confident that these accusations — which are based entirely on circumstantial evidence — cannot withstand scrutiny and that Mr. Gupta will be completely exonerated of any wrongdoing,” Naftalis said.
He said Gupta did not trade in any stocks and did not tip Rajaratnam so he could trade.
Manhattan US Attorney Preet Bharara said in a statement yesterday that Gupta had the trust of top companies.
“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, who reaped enormous profits from Mr Gupta’s breach of duty,” Bharara said.
Gupta surrendered to FBI agents. At his initial court appearance, a judge granted his release yesterday on $10 million bail, secured by his home in Westport, Connec-ticut. He was ordered to surrender his passport and his travel was restricted to the continental United States.
Moments before US magistrate judge Kevin Nathaniel Fox walked into the courtroom, a lawyer handed Gupta a salmon-colored tie that he knotted swiftly in the collar of his blue dress shirt.
“I have no comment,” he told reporters after the brief hearing.
Gupta’s lawyer entered a plea of not guilty before US District Judge Jed Rakoff, who gave Gupta the opportunity to read the charges in the indictment. Rakoff scheduled a trial date of April 9, 2012.
Gupta also faces civil charges brought by the US Securities and Exchange Commission. The SEC said Rajaratnam’s funds made more than $23 million on Gupta’s information.
The criminal charges carry a maximum prison sentence of 25 years.
