Ex-McKinsey Chief Charged By SEC With Tipping Rajaratnam

Mar 1 2011 | 3:02pm ET

Rajat Gupta, the former head of consulting giant McKinsey & Co. and a former Goldman Sachs board member, passed confidential information on to Galleon Group founder Raj Rajaratnam, the Securities and Exchange Commission alleged today.

The regulator filed a civil administrative proceeding against Gupta alleging that he passed tips about Goldman and Procter & Gamble, on whose board he also sat until today, to Rajaratnam. The suit comes just a week before Rajaratnam is set to face trial on insider-trading charges.

Gupta had previously been identified as a Rajaratnam tipster, but had not been accused of any wrongdoing. He has still not been charged with any criminal wrongdoing, and his lawyer, Gary Naftalis, dismissed the SEC charges as "totally baseless."

Gupta and Rajaratnam have been friends and business partners for decades. According to the SEC and prosecutors, Gupta gave Rajaratnam advanced notice of Berkshire Hathaway's 2008 investment of $5 billion in Goldman, one of more than a dozen stocks in which Rajaratnam is alleged to have traded illegally.

Galleon earned almost $1 million on the Berkshire tip, the SEC said. Two other tips that year, about Goldman's quarterly performance, helped Galleon earn more than $13.6 million and avoid more than $3 million in losses, the complaint alleges.

Gupta's tip about poor performance at P&G in the fourth quarter of 2008 allegedly earned Galleon another $570,000.

"Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets," SEC enforcement chief Robert Khuzami said. "Directors who violate the sanctity of board room confidences for private gain will be held to account for their illegal actions."

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