The former head of McKinsey & Co.'s Chicago office surrendered Wednesday to face a six-count securities fraud indictment that makes him the latest defendant in the biggest insider trading case in history.
The charges against
Rajat Gupta were unsealed in U.S. District Court in Manhattan, where the indictment accused him of cheating the markets with Raj Rajaratnam, the convicted hedge fund founder who was the probe's prime target.
Gupta, 62, of Westport, Conn., a former board member of Goldman Sachs and Procter & Gamble, was awaiting an arraignment on one count of conspiracy to commit securities fraud and five counts of securities fraud.
He lead McKinsey's Chicago office from 1989 to 1994, and also once served on the University of Chicago's board of trustees.
The charges carry a potential penalty of 105 years in prison.
The Securities and Exchange Commissioner originally brought civil fraud charges against Gupta in March. The SEC alleged that, at the height of the financial crisis, he passed along privileged financial information that helped enrich Rajaratnam, a former billionaire hedge fund manager who was the prime target of the criminal probe.
Gupta's lawyer responded by accusing the SEC of launching a "flawed case premised in large part on unreliable evidence being used in an attempt to bring down a man of sterling reputation and remarkable achievements without the procedural safeguards historically accorded to all persons similarly charged."
In a release, U.S. Attorney Preet Bharara said Gupta broke the trust of some of the nation's top public companies and "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."
Alluding to the wide scope of the prosecution, he added: "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."
FBI Assistant Director-in-Charge Janice Fedarcyk said the arrest was the latest to occur in an initiative launched by the FBI in 2007 against hedge fund cheats.
"The conduct alleged is not an inadvertent slip of the tongue by Mr. Gupta," she said. "His eagerness to pass along inside information to Rajaratnam is nowhere more starkly evident than in the two instances where a total of 39 seconds elapsed between his learning of crucial Goldman Sachs information and lavishing it on his good friend."
The indictment said Gupta shared confidential information about both Goldman Sachs and Procter & Gamble from 2008 through January 2009, knowing that Rajaratnam would use the secrets to buy and sell stock ahead of public announcements.
The Securities and Exchange Commission also brought civil insider trading charges against Gupta Wednesday.
The SEC said Gupta, the former McKinsey & Co. global head, illegally tipped Rajaratnam, who has been sentenced to 11 years in prison after he was convicted at trial.
Rajat Gupta: Bigger Than Madoff?
Rajat Gupta may be the most important businessman ever charged with a serious violation of securities laws. The only people who even comes close to the stature of Gupta are Michael Milken and Bernard Madoff. But despite the vast wealth people had given to Madoff to manage, he was never a member of the inner circle of corporate power in America.
Gupta is one of the most connected people in corporate America that you've never heard of, as Duff McDonald showed in his October 2010 Fortune magazine profile. Gupta spent 34 years at McKinsey, arguably the most important corporate consulting company in the world. In 1994, he was elected head of McKinsey, a position he held for nine years.
Under his tenure, McKinsey grew into a truly global powerhouse, opening at least 20 offices overseas and more than doubling the number of consultants employed, McDonald writes.
