Rajat Gupta part of insider trading: US prosecutor

 | March 07,2011 01:15 pm IST

After the Securities and Exchange Commission (SEC), a US federal prosecutor has alleged that Indian-American Rajat Gupta, a former Goldman Sachs director, was part of an alleged insider-trading conspiracy with Galleon Group founder Raj Rajaratnam.


The statements at a court hearing in New York Friday were the first time federal prosecutors had publicly cited the involvement of Gupta, 62, looked at as an icon by the Indian American business community, in the alleged scheme, the Wall Street Journal said.


Gupta, the former head of consulting firm McKinsey & Co. and the founder chairman of the Indian School of Business in Hyderabad, hasn't been charged with any criminal wrongdoing so far. SEC had Tuesday filed a civil administrative action against Gupta for allegedly sharing inside information with Rajaratnam when Gupta was a member of the boards of Goldman and Procter & Gamble Co.


Friday's hearing was about objections to wiretapped telephone calls that prosecutors intend to play at Rajaratnam's trial on conspiracy and securities fraud charges, which begins next Tuesday.


The journal cited assistant US Attorney Jonathan Streeter as saying that "the government is going to show on at least two occasions that Gupta attended Goldman Sachs board meetings" and that "within minutes of the meetings, he called Raj Rajaratnam."


Following the calls, Rajaratnam bought or sold his Goldman stock, Streeter said.


The alleged inside information included details before the public announcement of a $5 billion investment by Warren Buffet's Berkshire Hathaway Inc. at the height of the financial crisis in September 2008 and Goldman's first reported loss as a public company in fall 2008.


Rajaratnam allegedly bought "hundreds of thousands of shares" of Goldman Sachs within minutes of receiving the call regarding the Berkshire investment, Streeter was quoted as saying.


Rajaratnam's lawyer, John Dowd, has said the SEC's administrative action was "simply an effort to destroy a favourable witness," the Journal said.


Rajaratnam has denied wrongdoing. At least one call prosecutors intend to play was between Gupta and Rajaratnam, but occurred in July 2008 before the alleged leaks. Rajaratnam's lawyers have objected to that call being played at trial.

"These allegations first made by the SEC are totally baseless. Gupta's 40-year record of ethical conduct, integrity, and commitment to guarding his clients' confidences is beyond reproach," said Gary Naftalis, Gupta's lawyer.


"Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Gupta traded in any of these securities or shared in any profits as part of any quid pro quo.


"In fact, Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity," he said.

Meanwhile, the New York Post said Goldman Sachs chief Lloyd Blankfein has agreed to testify at the trial of Rajaratnam, to phone calls he made to Rajat Gupta.


Speculation about Blankfein's appearance emerged after Rajaratnam's attorney filed court papers saying the government's witness list includes "numerous Goldman Sachs and Procter & Gamble representatives" who are expected to testify on behalf of the government's case against Rajaratnam.


Raj Rajaratnam is among 26 people charged in broad criminal insider-trading probe. Nineteen people have pleaded guilty in the probe. Among them Anil Kumar, a formerIndian American McKinsey consultant pleaded guilty in January 2010 to

leaking inside information about a possible merger to Rajaratnam, in return for $1.75 million.