Ex-Goldman director arrested for insider trading

Wednesday, 26 October 2011 18:00

Charges against Gupta, who is accused of leaking confidential trade information to disgraced hedge fund magnate Raj Rajaratnam, would mark a stunning reversal for one of America's elite executives.

An FBI spokesman said Gupta, the long-time head of the prestigious McKinsey international consultancy, surrendered at 8:10 am (1210 GMT) and was due to appear later Wednesday in a New York court.

"The facts demonstrate that Mr Gupta is an innocent man and that he has always acted with honesty and integrity," said his lawyer Gary Naftalis, calling the criminal allegations "totally baseless" and vowing to fight the charges.

"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."

However, the Connecticut-based business consultant and former Procter & Gamble director has previously been investigated over whether he broke the law by tipping off Rajaratnam, the founder of the Galleon Group hedge fund who was sentenced this month to 11 years in prison.

Prosecutors said Gupta tipped Rajaratnam about Warren Buffett's surprise $5 billion investment in Goldman Sachs during the financial crisis, allowing Rajaratnam to profit from trade before the market knew about the transaction.

He also allegedly told Rajaratnam in advance that Goldman was about to post its first ever quarterly earnings loss, another major event on the market.

Rajaratnam is said to have used the inside information to trade on behalf of some of Galleon's hedge funds, or shared the information with others at his firm who then traded on it ahead of public announcements by the companies.

The insider trading by Rajaratnam and others produced more than $18 million in illicit profits and loss avoidance, according to the Securities and Exchange Commission.

At the time of the insider trading Gupta was a direct or indirect investor in at least some of these Galleon hedge funds, the US markets regulator said after charging him in March, adding that the consultant "had other potentially lucrative business interests with Rajaratnam."

According to the SEC, Gupta had tipped off Galleon that P&G would have lower-than-expected sales growth in the 2008 final quarter, allowing the hedge fund to pocket illicit profits of more than $570,000.

Gupta joined the Goldman board in November 2006 and served as a member of the Wall Street giant's audit, compensation and corporate governance and nominating committees.

The bank's announcement in March 2010 that Gupta, a senior partner emeritus at McKinsey, would not stand for re-election came amid speculation that he was a suspect in the insider-trading probe.

The Indian-born naturalized US citizen became chairman of the International Chamber of Commerce last July.

The Harvard Business School graduate has been affiliated with a number of organizations, including the United Nations, where former secretary-general Kofi Annan tapped him in 2005 as his special adviser for management reform.-AFP