The US Securities and Exchange Commission has charged Indian Business School founder and former McKinsey senior executive Rajat Gupta in an insider trading case linked to Lankan expat Raj Rajaratnam's Galleon Hedge Fund.The SEC cited five specific instances. Four went back to Gupta's term as a member of the board of investment bank Goldman Sachs and the third to his term on the board of consumer goods giant Proctor & Gamble, which he quit Tuesday.
"Gupta was honoured 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, in a statement.
Gary Naftalis, a lawyer representing Gupta, has said the SEC charges are "totally baseless".
An alumnus of Modern School and IIT-Delhi, Gupta in 2001 founded the Indian School of Business in Hyderabad, a privately-owned business school counted among the best in the world. He lives in Connecticut.
Rajaratnam, owner of Galleon Management, and six others including two Indian-origin financial consultants, were charged by the SEC in December 2009 with insider trading that generated more than $25 million.
The Galleon chief is going on trial shortly. Gupta was allegedly part of this racket.
In one instance, Gupta tipped off Rajaratnam about a $5 billion investment in Goldman Sachs by Warren Buffett's Berkshire Hathaway. Rajaratnam's Galleon fund made $900,000 by buying Goldman shares before the information became public, and selling the shares after the announcement was made.
In another instance, Gupta told Rajaratnam in June 2008 that Goldman Sachs' second quarter results were going to be better than forecast. In that transaction, Rajaratnam is alleged to have made $13.6 million - for a little less than a week's work.
The SEC has issued a cease and desist order against Gupta.