By Grant McCool
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Galleon Group founder Rajaratnam was sentenced to 11 years in prison this month for insider trading, an investigation that caught many of his associates on secretly recorded phone calls.
He was charged with one count of conspiracy and five counts of securities fraud. He also was charged in a civil insider trading case brought by the U.S. Securities and Exchange Commission.
"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," Manhattan U.S. Attorney Preet Bharara said in a statement.
"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," Bharara said.
A spokesman for Gupta's lawyer, Gary Naftalis, declined immediate comment on his client's arrest.
On Tuesday night, when a source briefed on the case said Gupta would be arrested, Naftalis said in a statement that his client did nothing wrong.
"Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless," Naftalis said. "The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."
An FBI spokesman said Gupta surrendered to agents at his home in Westport, Connecticut, and that he was driven to the New York FBI office, where he was placed under formal arrest at 8:15 a.m. EDT.
He is expected to appear in federal court later in the day, court officials said.
Rajaratnam, who was born in Sri Lanka and became a billionaire through his hedge fund business, was convicted in May of 14 insider-trading related charges, and his 11-year sentence is the longest recorded for insider trading. At the trial, prosecutors said that in 2008 Gupta, who was born in India, leaked information about Goldman Sachs that he learned from the powerful Wall Street bank's board meetings.
Goldman Chief Executive Officer Lloyd Blankfein testified at the trial for the prosecution about Gupta's conduct on the bank's board.
Stephen Cohen, a spokesman for Goldman Sachs, declined to comment on Wednesday. A spokesman for Procter & Gamble declined comment as did a spokeswoman for McKinsey & Co.
The Rajaratnam trial punctured McKinsey's reputation for closely guarding client confidentiality. Former McKinsey executive Anil Kumar, also a one-time friend of the hedge fund manager, pleaded guilty to criminal charges and testified against Rajaratnam.
Prosecutors played secretly recorded telephone conversations to the jury in which Rajaratnam told Galleon employees about information he had received from Gupta about Goldman Sachs.
In one recording dated October 24, 2008, Rajaratnam was on a call with David Lau, chief of Galleon's Singapore branch, discussing a tip he got from a board member that Goldman was on its way to a surprise fourth-quarter loss, its first as a public company.
The call came one day after the investment bank held a board meeting discussing the loss, prosecutors said.
(Reporting by Basil Katz, Grant McCool and Jonathan Stempel in New York, editing by Gerald E. McCormick, Lisa Von Ahn, Dave Zimmerman and Robert MacMillan)