Rajat K. Gupta, the highest-ranking corporate executive to become embroiled in a push by the government to root out insider trading, surrendered to the Federal Bureau of Investigation on Wednesday morning on criminal charges of leaking confidential information.
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Rajat Gupta in 2010.
Mr. Gupta, the former head of global consulting firm McKinsey & Co., was under investigation over whether he gave inside information to former hedge-fund titan Raj Rajaratnam, who was sentenced earlier this month to serve 11 years in prison for insider trading.
Gary Naftalis, Mr. Gupta's lawyer, has said in a statement that Mr. Gupta is innocent and "has always acted with honesty and integrity." Mr. Gupta "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," Mr. Naftalis said, adding that he would fight any charges.
Mr. Gupta, 62 years old, "is currently in custody and being processed," a spokesman for the FBI said on Wednesday morning.
The charges against Mr. Gupta, also a former director of Goldman Sachs Group Inc. and Procter & Gamble Co., come amid the government's unprecedented crackdown on what it describes as rampant illegal trading on Wall Street. Since late 2009, federal prosecutors in Manhattan have charged 55 individuals with insider trading, resulting in 51 convictions or guilty pleas.
A representative for the Manhattan U.S. attorney's office has declined to comment.
Specific details of the criminal charges couldn't immediately be determined.
The expected charges against Mr. Gupta, however, are likely to show that the government believes that insider trading doesn't always involve swapping information for money. Mr. Gupta isn't alleged to have received any money or direct benefits from Mr. Rajaratnam in exchange for corporate secrets, a potential weakness in the prosecutors' case Mr. Gupta's lawyer is likely to seize on.
The government is expected to argue that the relationship between the two men, who socialized and invested together, is emblematic of the back-scratching that pervades the corporate world and can sometimes veer into insider trading.
Mr. Naftalis said his client "lost his entire investment" with Mr. Rajaratnam "at the time of the events in question, negating any motive to deviate from a lifetime of probity and distinguished service."
Prosecutors and the Securities and Exchange Commission have previously said in filings and in court that Mr. Gupta gave Mr. Rajaratnam details he had learned at Goldman board meetings in 2008 about a $5 billion investment in the bank by Warren Buffett's Berkshire Hathaway Inc. and about Goldman's first ever quarterly loss as a public company. Mr. Gupta has denied the SEC allegations.
During the trial, the hedge-fund manager was heard in a recorded conversation on Oct. 24, 2008, confiding to a colleague in Singapore that he was tipped that Goldman was on track to potentially report a quarterly loss. The conversation came a day after members of Goldman's board, including Mr. Gupta, were told that the investment bank was positioned to report its first quarterly loss since it became a public company.
According to evidence presented at Mr. Rajaratnam's trial, Mr. Gupta called him within minutes of learning confidential details at Goldman board meetings.
"I heard yesterday from somebody who's on the board of Goldman Sachs that they are going to lose $2 per share," Mr. Rajaratnam said on the tape. "The Street has them making $2.50."
Mr. Rajaratnam was convicted in May of securities fraud and conspiracy. He was sentenced this month to 11 years in prison, the longest-ever for insider trading.
Mr. Gupta also allegedly leaked information about the corporate earnings of Procter & Gamble, where he also served on the board, according to a complaint filed by regulators.
McKinsey hasn't been accused of any wrongdoing in the insider-trading matter. McKinsey couldn't immediately be reached for comment.
Neither Goldman nor P&G has been accused of any wrongdoing in the insider-trading matter. Goldman has declined to comment. A spokesman for P&G has declined to comment.
Mr. Gupta's surrender in the case marks the latest hit to the reputation of the first non-Westerner to lead the consulting firm McKinsey. The soft-spoken Mr. Gupta inspired younger generations both in his native India and in the U.S. Later, carving out a new role in philanthropy, he drew on his vast Rolodex of corporate chieftains, who didn't hesitate to jump when he called seeking their support.
Mr. Gupta grew up in Kolkata, India, studied at the Indian Institute of Technology in Delhi, and moved to the U.S. in 1971 to attend Harvard Business School. Two years later, he joined the New York office of McKinsey, a largely white, clubby consulting firm founded 50 years earlier that had become a management consultant of choice for Fortune 500 companies.
By 1994, at 45, Mr. Gupta had risen to the top of the company, which then had annual revenues of $1.3 billion. At the time, though, Mr. Gupta sounded a distinctly humble and anti-corporate note, telling the Chicago Tribune that his biggest role models were Mother Teresa and Swami Vivekananda, a 19th-century Hindu reformer. He also rejected McKinsey's reputation as elitist.
"If anything, it's a meritocracy," Mr. Gupta said. "In fact, I think it's a great tribute to the firm that it actually elected someone like me."
Mr. Gupta was well-liked at McKinsey. Anil Kumar, a McKinsey consultant who pleaded guilty himself to giving Mr. Rajaratnam inside information, privately described Mr. Gupta as having a "spiritual quality and a Zen-like calm," people close to the situation say.
McKinsey expanded dramatically under his watch, which lasted until 2003. Both before and after he led the company, Mr. Gupta increased his international prominence as an advocate for business and development around the world.
He helped his alma mater in India start a business school, with the help of corporate executives of major companies who donated millions at his request, including Goldman's former CEO Hank Paulson. He served in advisory roles at Harvard and the Kellogg business school in Chicago, where he once lived while leading McKinsey. Mr. Gupta worked with former President Bill Clinton in leadership roles at the American India Foundation, and as chairman of the Global Fund for HIV/AIDS.
In the corporate world, Mr. Gupta joined the boards of AMR Corp., the parent company of American Airlines, and Goldman in 2006. Goldman chief Lloyd Blankfein said he considered Mr. Gupta a "peer," and wanted him on the Goldman board because he believed he and Mr. Gupta were similarly situated at the top of the heap in the business world.
Mr. Gupta also became close with Mr. Rajaratnam, a Sri Lanka-born billionaire who had become a rising star among Wall Street money managers. Mr. Gupta often visited Mr. Rajaratnam's offices; he invested in one of Mr. Rajaratnam's funds. Mr. Rajaratnam invested in New Silk Route, an India-focused private equity group Mr. Gupta launched. But troubles related to that relationship began to surface in 2010.
Mr. Gupta's role in the Galleon investigation was reported by The Wall Street Journal that April, when prosecutors were examining whether Mr. Gupta had given inside information to Galleon.
Mr. Gupta's name emerged in a government letter, filed in a New York federal court as part of the Rajaratnam case at the time, listing companies whose trading by Mr. Rajaratnam the U.S. was investigating. The March 22, 2010, letter said the government was scrutinizing trades by Mr. Rajaratnam and others from June 2008 to October 2008.
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