With the staggering takedown Wednesday of financial baron Rajat Gupta on insider trading charges, the feds have a message for Wall Street honchos: We’re watching you.
Gupta, 62, a former Goldman Sachs board member, was charged with one count of conspiracy and five counts of securities fraud in Manhattan federal court. He pleaded not guilty and posted bail for $10 million, secured by his Westport, Conn., home. He faces up to 105 years in prison if convicted.
Prosecutors allege Gupta sat on the boards of some of America’s most storied financial institutions and corporations, including Goldman Sachs and Procter & Gamble, only to serve up company secrets to hedge fund manager Raj Rajaratnam, who would then trade stocks based on the tips.
Rajaratnam was found guilty in May on conspiracy and securities fraud charges and was sentenced this month to a record 11 years in prison.
Gupta “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,” Manhattan U.S. Attorney Preet Bharara said in a statement.
The Securities and Exchange Commission also filed a civil suit Wednesday, claiming Gupta earned Rajaratnam’s hedge fund $23 million in illegal profits and loss avoidance.
Gupta’s attorney, Gary Naftalis, denied the allegations, telling reporters: “The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity.”
Gupta’s arrest puts another feather in the cap of Bharara, Wall Street watchers said, after spending the past two and a half years infiltrating insider trading in New York. Under his watch, 51 people have been convicted and 21 sentenced.
“His office’s overwhelming success in that arena has put Wall Street on notice,” said James Keneally, a white-collar criminal defense attorney with the firm Kelley Drye & Warren. “He’s been very aggressive in terms of investigative techniques and the height and depth of his indictments.”
Going after Gupta also puts a blotch on venerable investment bank Goldman Sachs, which posted a quarterly loss this month for only the second time since going public in 1999.
Bill Singer, a former American Stock Exchange compliance attorney, isn’t convinced Wall Street CEOs and their boards are going to be any more vigilant about corruption.
“When you have one roach in the kitchen, you know there’s more somewhere else,” he said.
Rajat Kumar Gupta
Education: MBA from Harvard Business School
Net worth: At least $100 million, according to CNN.
• Was consulting firm McKinsey & Co.’s first managing director from 1994-2003.
• Served on board of Goldman Sachs from November 2006 to May 2010.
• Served on board of Procter & Gamble from 2007 to March 2011.