UPDATE Federal prosecutors today charged Westporter Rajat Gupta with conspiracy and securities fraud hours after he left his Beachside Avenue home at 6:15 a.m. and surrendered to FBI agents –- the highest ranking executive to be arrested in a four-year securities-fraud investigation of insider trading at hedge funds.
Rajat Gupta: in FBI custody. File photo
Gupta, 62, a former Goldman Sachs Group Inc. director who gave himself up to FBI agents in Manhattan at 8:15 a.m., was accused of feeding inside information to Galleon Group LLC hedge fund manager Raj Rajaratnam.
He was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud in an indictment unsealed in Manhattan federal court. The U.S. Securities and Exchange Commission also sued Gupta today.
Gupta’s case once again brought the media insider trading spotlight to Westport where former resident Martha Stewart lived in 2004 when charged with obstruction of justice. She served a five-month prison sentence after being convicted on charges she lied about her sale of ImClone Systems stock before damaging information about the biotech firm became public.
“From 2008 through January 2009, Gupta disclosed to Raj Rajaratnam material, nonpublic information that Gupta had learned in his capacity as a member of the Boards of Directors of Goldman Sachs and P&G with the understanding that Rajaratnam would use the inside information to purchase and sell securities,” the indictment of Gupta said.
“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,” Preet Bharara, the U.S. attorney in Manhattan, 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.”
The statement went on: “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.”
Gupta pleaded not guilty at his arraignment before U.S. District Judge Jed Rakoff. He appeared in court in wearing a salmon Hermes necktie, blue shirt and navy blue suit. Rakoff set an April 9 trial date.
Gupta was ordered released on $10 million bond secured by his home after a federal magistrate ordered him to surrender his passport and barred him from leaving the continental U.S.
Gupta and his lawyer, Gary Naftalis, declined to comment on the charges after court.
Gupta, who in 1999 purchased his eight-bedroom, eight-bath waterview home on 2.28 acres once owned by legendary retailer J. C. Penney, has steadfastly maintained his innocence. Reporters saw him leave the home at 6:15 a.m. accompanied by one other person.
In a statement e-mailed Tuesday to news media, his lawyer, Naftalis, said: “Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. 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.” (See earlier WestportNow story here)
The U.S. Attorney’s Office said Gupta faces a maximum penalty of five years in prison on the conspiracy charge and 20 years in prison on each of the securities fraud charges.
In addition, with respect to the conspiracy charge, Gupta faces a maximum fine of $250,000 or twice the gross gain or loss derived from the crime, prosecutors said.
For each of the securities fraud charges, Gupta faces a maximum fine of $5 million or twice the gross gain or loss derived from the crime.
