Rajat K. Gupta, former managing director of McKinsey & Co. and former board member of The Goldman Sachs Group and the Procter & Gamble Co., surrendered to the Federal Bureau of Investigation and appeared in Federal District court on Oct. 26.
Gupta, 62, of Westport, Conn., is charged with one count of conspiracy to commit securities fraud and five counts of securities fraud. He faces a maximum penalty of five years in prison on the conspiracy charge and 20 years in prison on each of the securities fraud charges. In addition, with respect to the conspiracy charge, Gupta faces a maximum fine of $250,000 or twice the gross gain or loss derived from the crime. For each of the securities fraud charges, he faces a maximum fine of $5 million or twice the gross gain or loss derived from the crime.
The charges stem from Gupta’s alleged involvement in an insider trading scheme with Raj Rajaratnam, the founder and former head of the Galleon Group.
According to the indictment, in 2008 and 2009, Gupta disclosed to Rajaratnam insider information that he learned in his capacity as a member of the boards of directors of Goldman Sachs and Procter & Gamble with the understanding that Rajaratnam would use the information to purchase and sell securities.
Rajaratnam, in turn, caused the execution of transactions in the securities of Goldman Sachs and Procter & Gamble on the basis of the information, and shared the information with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars. The information included confidential information about the companies’ earnings and financial performance, as well as certain corporate transactions that were being undertaken by Goldman Sachs and Procter & Gamble.
Gupat also in invested money in at least two different Galleon funds and formed separate investment and private equity funds with Rajaratnam.
“Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders,” said Preet Bharara, the U.S. for the Southern District of New York. “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. Today we allege that the corruption we have seen in the trading cubicles, investment firms, law firms, expert consulting firms, medical labs, and corporate suites also insinuated itself into the boardrooms of elite companies.”
“Today’s surrender is the latest step in an initiative launched by the FBI in 2007 targeting hedge fund insider trading,” said FBI Assistant Director-in-Charge Janice K. Fedarcyk. “His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of thirty-nine seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend. That information (captured by the FBI) was conveyed by phone so quickly it could be termed instant messaging.”