Ex-Goldman director Gupta arrested in Galleon case

October 26, 2011 7:38 AM1 commentViews: 13

Ex-Goldman director Gupta arrested in Galleon case

NEW YORK – Rajat Gupta, a former director of Goldman Sachs Group Inc and other major companies, was arrested on Wednesday on criminal charges, the most prominent corporate executive to be accused in a broad U.S. crackdown on insider trading.

The FBI said Gupta, 62, surrendered to agents on charges related to the insider-trading case of his friend, former hedge fund manager Raj Rajaratnam. Galleon Group founder Rajaratnam was sentenced to 11 years in prison this month for insider trading, an investigation that caught many of his associates on secretly-recorded phone calls discussing corporate secrets.

Gupta was global head of elite consultancy McKinsey & Co for nine years until he retired in 2007. He won a seat on the board of directors of powerful Wall Street bank Goldman in 2006. He was also a director of Procter & Gamble Co and American Airlines Corp.

An FBI spokesman said Gupta surrendered to agents at his home in Connecticut and that he was driven to the New York FBI office, where he was placed under formal arrest at 8:15 a.m. EDT.

He is expected to appear in federal court later in the day, court officials said. The exact charges were not yet known.

Rajaratnam, who was born in Sri Lanka and became a billionaire through his hedge fund business, was convicted in May of 14 insider-trading related charges, and his 11-year sentence is the longest recorded for insider trading. At the trial, prosecutors said that in 2008 Gupta, who was born in India, leaked information about Goldman Sachs that he learned from the powerful Wall Street bank’s board meetings.

Goldman Chief Executive Officer Lloyd Blankfein testified at the trial for the prosecution about Gupta’s conduct on the bank’s elite board of directors.

A spokesman for Gupta’s lawyer, Gary Naftalis, declined immediate comment on his client’s arrest.

On Tuesday night, when a source briefed on the case said Gupta would be arrested, Naftalis said in a statement that his client had done nothing wrong.

“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless,” Naftalis said. “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.”

Stephen Cohen, a spokesman for Goldman Sachs, also declined to comment. A spokeswoman for McKinsey declined comment.

The Rajaratnam trial punctured McKinsey’s prized reputation for closely guarding client confidentiality. Former McKinsey executive Anil Kumar, also a one-time friend of the hedge fund manager, pleaded guilty to criminal charges and testified against Rajaratnam.

Prosecutors played secretly recorded telephone conversations in which Rajaratnam was heard telling Galleon employees about information he had received from Gupta about Goldman Sachs.

In one recording dated October 24, 2008, Rajaratnam was heard calling David Lau, chief of Galleon’s Singapore branch, and discussing a tip he got from a board member that Goldman was on its way to a surprise fourth-quarter loss, its first as a public company.

The call came one day after the investment bank held a board meeting discussing the loss, prosecutors said.

“I just heard from somebody who’s on the board of Goldman Sachs, they are gonna lose $2 per share,” Rajaratnam was heard saying. “So what he (the board member) was telling me was that, uh, Goldman, the quarter’s pretty bad.”

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