SEC charges ex-Goldman board member Rajat Gupta

NEW YORK  A former board member of Wall Street titan Goldman Sachs and ex-chief of one of the world's most prestigious consulting firms was accused by federal regulators Tuesday of leaking illegal insider tips to a hedge fund heavyweight who is at the center of a massive insider trading probe.

In the latest jab intended to punish those who allegedly cheat to make money in financial markets, Rajat Gupta, who once headed McKinsey & Co., was charged with insider trading by the Securities and Exchange Commission.

Gupta, 62, allegedly tipped off Galleon Group founder Raj Rajaratnam, 53, who is set to go on trial next week in New York on insider trading charges, on a number of occasions while a Goldman board member. He allegedly leaked word of the $5 billion investment in Goldman Sachs by billionaire investor Warren Buffett at the height of the financial panic in September 2008, the SEC's complaint said.

Following the end of a board meeting via teleconference on Sept. 23, 2008, that Gupta attended, he "immediately" phoned the hedge-fund manager, who two minutes after hanging up with Gupta, and just minutes before the close of trading that day, bought 175,000 shares of Goldman stock, the complaint said. Rajaratnam's fund sold the Goldman shares the next day, netting $900,000.

Gupta also allegedly provided Rajaratnam with tips regarding Goldman's quarterly earnings prior to official release of the news. In total the tips netted Rajaratnam almost $17 million in illegal profits, the SEC claims.

"Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets," said Robert Khuzami, director of the SEC's Division of Enforcement. The SEC says Gupta was an investor in a Galleon hedge fund that traded and profited on the inside information.

Gupta's attorney, Gary Naftalis, called the allegations "totally baseless," citing Gupta's four decades of "ethical conduct, integrity, and commitment to guarding his client's confidences (as) beyond reproach. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits ..."

Rajaratnam's lead attorney sharply criticized the timing of the complaint against Gupta so close to Rajaratnam's trial, slated to begin next Tuesday.

"There is absolutely no merit to it. This is simply an effort to destroy a favorable witness," said John Dowd of Akin Gump. "There is no case. Absolutely none. No conversations. No benefit. Nothing. These are old friends. Gupta is a distinguished human being."

The SEC also accused Gupta of passing along inside information about Procter & Gamble in 2008 while he was still a board member at P&G. Gupta "voluntarily resigned" from P&G's board Tuesday, P&G spokesman Paul Fox said.