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Insider trading: Ex-Goldman board member arrested

Insider trading charges brought against former Goldman director Rajat Gupta. Charges stem from insider trading case that netted Raj Rajaratnam 11 years in prison.

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Aside from being a former director of the Wall Street powerhouse Goldman Sachs, Gupta is the former chief of McKinsey & Co., a highly regarded global consulting firm that zealously guards its reputation for discretion and integrity.

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Gupta was also a former director of the huge consumer products company Procter & Gamble Co., a pillar of American industry and one of the 30 companies that make up the Dow Jones industrial average. P&G owns many well-known brands including Bounty, Tide, and Pringles.

The Indian-born defendant's name played prominently at the criminal trial earlier this year of Rajaratnam, who was convicted after prosecutors used a trove of wiretaps on which he could be heard coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades.

Jurors heard testimony that at an Oct. 23, 2008, Goldman board meeting, members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999.

Prosecutors produced phone records showing Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning and save millions of dollars.

Rajaratnam also earned close to $1 million when Gupta told him that Goldman had received an offer from Warren Buffett's Berkshire Hathaway to invest $5 billion in the banking giant, prosecutors said.

In one tape played at trial, Rajaratnam could be heard grilling Gupta about whether the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.

"Have you heard anything along that line?" Rajaratnam asked Gupta.

"Yeah," Gupta responded. "This was a big discussion at the board meeting."

Prosecutors sought to maximize the impact of the Gupta tape by calling Goldman Sachs chairman Lloyd Blankfein to testify that the phone call violated the investment bank's confidentiality policies.

The Securities and Exchange Commission also brought civil insider trading charges against Gupta Wednesday.

Rajaratnam was sentenced earlier this month to 11 years in prison.