Ex-Goldman director Gupta charged in insider case

Wed Oct 26, 2011 4:46pm EDT
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By Grant McCool and Basil Katz

NEW YORK (Reuters) - Rajat Gupta, who sat on the boards of some of America's most prestigious companies, was arrested and charged on Wednesday with being the "illegal eyes and ears" for his friend Raj Rajaratnam, the central figure in a broad U.S. crackdown on insider trading at hedge funds.

Gupta, 62, a former director of Goldman Sachs Group Inc, Procter & Gamble and former global head of the McKinsey & Co consultancy, is the most prominent executive to face insider-trading charges since Rajaratnam was arrested in October 2009.

At the start of his court appearance on five counts of securities fraud and one count of conspiracy, the Manhattan federal courtroom was silent but for the sound of Gupta slowly leafing through a copy of the 21-page indictment. It was his first opportunity since he surrendered to FBI agents on Wednesday morning to read the allegations against him.

His defense lawyer entered a plea of not guilty on charges tied to what prosecutors say were Gupta's leaks of Goldman and Procter & Gamble secrets to Rajaratnam in 2008 and 2009. U.S. District Judge Jed Rakoff set a trial date of April 9, 2012 as Gupta sat calmly with his arms folded.

Earlier, another judge granted Gupta's release on $10 million bail, secured by his home in Westport, Connecticut, with travel restrictions. Moments before U.S. Magistrate Judge Kevin Nathaniel Fox walked into the courtroom, a lawyer handed Gupta a salmon-colored designer tie that he knotted swiftly in the collar of his blue dress shirt.

Two weeks ago, Galleon Group founder Rajaratnam, 54, was sentenced to 11 years in prison -- the longest sentence ever in an insider-trading case -- for his conviction in May on 14 criminal counts. The Galleon case caught many of the fund manager's associates on secretly recorded phone calls.

Gupta's lawyer, Gary Naftalis, said in a statement that there were legitimate reasons for communications between his client and Rajaratnam, including a $10 million investment that Gupta had in a fund managed by the Galleon founder. Gupta lost the entire amount, Naftalis said.

"We are confident that these accusations -- which are based entirely on circumstantial evidence -- cannot withstand scrutiny and that Mr. Gupta will be completely exonerated of any wrongdoing," Naftalis said.   Continued...