Gupta Sues Private-Equity Partner

Mar 25 2013 | 1:15pm ET

Rajat Gupta, the former McKinsey & Co. chief convicted of passing inside information to Galleon Group founder Raj Rajaratnam, is seeking to hold on to the private equity firm he founded with Rajaratnam and another friend.

Gupta filed suit against Parag Saxena, his co-founder at New Silk Route Partners, accusing Saxena of trying to steal the firm from him. While Gupta, who is appealing his conviction and a two-year prison sentence, agreed to distance himself from the New York-based firm, which focuses on investments in India, and to give up his chairman's title and voting shares, he retained the right to appoint one member to New Silk Route's two-member board.

According to Gupta's lawsuit, Saxena is trying to deprive him of that right and to seize control of the firm. In December, Gupta said that Saxena told him he'd seek to remove Gupta's appointee, Anil Sood, from the board in a bid to win "unfettered control" of New Silk Route. Gupta also alleges that Saxena in March sought to block Gupta's new appointee, former McKinsey chairman Herbert Henzler, by refusing to buy directors' and officers' insurance.

“By refusing to exercise his power as a shareholder of the company to cause director and officer insurance to be obtained and thereby trying to thwart the appointment or election of Henzler, Saxena breached the covenant of good faith and fair dealing inherent in the voting agreement,” Gupta said.

In the meantime, Sood remains on New Silk Route's board.

Saxena did little to counter that allegation in a statement from New Silk Route, which said the firm is "committed to sever all ties with Mr. Gupta." The firm said it has offered "to buy [Gupta's] remaining investment stake."

Saxena, Gupta and Rajaratnam founded New Silk Route in 2006. Rajaratnam later left the firm when it decided not to launch a hedge fund. The firm now manages $1.4 billion.

Gupta did not specify the damages he is seeking from Saxena.

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