Rajat Gupta, a former Goldman Sachs director and senior figure in corporate America, has been charged with conspiracy and security fraud offences, making him the most high-ranking executive to become embroiled in a wide-ranging Wall Street insider dealing inquiry.
Prosecutors said Mr. Gupta had provided disgraced trader Raj Rajaratnam with an “instant messaging” service from inside some of America's most esteemed boardrooms. The indictment accuses Mr. Gupta of entering into an insider arrangement with Rajaratnam, founder of the hedge fund Galleon Group.
Rajaratnam was sentenced to 11 years in jail for insider dealing offences this month. During his trial, Mr. Gupta's name came up on several occasions, suggesting it was only a matter of time before the authorities called him in. Mr. Gupta's lawyer told reporters the charges are “totally baseless [and] are based entirely on circumstantial evidence”.
The indictment includes two episodes at the height of the banking crisis where Mr. Gupta allegedly went from a Goldman Sachs boardroom conference call and, within seconds, called up Rajaratnam with insider information.
Best known as the former head of consultancy group McKinsey, where he worked for 34 years, Mr. Gupta was in the upper echelons of the corporate establishment in America, courted as a non-executive director by some of the biggest companies in the world. As well as Goldman Sachs, past directorships include Procter & Gamble and the parent company of American Airlines.
Preet Bharara, U.S. attorney for the southern district of New York, said: “Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms and receive their confidential information. As alleged, he broke that trust and instead became the illegal eyes and ears for his friend.” Mr. Gupta had private links to Rajaratnam, with whom he formed investment and private equity funds, according to prosecutors. The former McKinsey boss was also an investor in at least two Galleon funds.
The charges against Mr. Gupta carry a maximum sentence of 105 years imprisonment and are part of a crackdown on Wall Street. In the last two years, federal prosecutors have secured 51 convictions. A key to the convictions was the extensive use of wire taps, which were allegedly able to identify Mr. Gupta as a source of Rajaratnam's information. One prosecutor said: “His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than instances where seconds elapsed between his learning crucial Goldman Sachs information and lavishing it on his good friend. It could be termed instant messaging.” Harvard-educated Mr. Gupta, who was born in India, allegedly helped his friend to trade in the knowledge that Warren Buffett's Berkshire Hathaway was to inject $5 billion into Goldman Sachs, the court was told. A call from Mr. Gupta's office allegedly connected with Rajaratnam 16 seconds after he put the phone down on the rest of the Goldman Sachs board on 23 September, 2008. Four minutes later — two minutes before the markets closed — Galleon bought $27 million of Goldman shares. A sale of the investment the following day, after news of Berkshire Hathaway's capital injection broke, generated a profit of about $840,000. — © Guardian Newspapers Limited, 2011