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Insider trading: Ex-Goldman Sachs director Rajat Gupta pleads not guilty

Insider trading has been a target of both the Bush and Obama administrations. The case against Rajat Gupta, a former director of both Goldman Sachs and Procter & Gamble, is part of a major crackdown on insider trading.

By Staff writer / October 26, 2011

Rajat Gupta, former Goldman Sachs director and global head of consultancy at McKinsey & Co., is seen in this courtroom sketch during his appearance in Manhattan Federal Court in New York Oct. 26.

Jane Rosenberg/Reuters

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A former member of the board of directors of Goldman Sachs and Procter & Gamble appeared in federal court in New York Wednesday to face charges that he leaked confidential information to a hedge fund manager who used the tips to earn easy profits and avoid significant losses.

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Rajat Gupta, of Westport, Conn., pleaded not guilty and was released on $10 million bond. The case marks the latest development in a major crackdown on the insider trading on Wall Street that has been the target of both the Bush and Obama administrations.

The federal court is blocks from where Occupy Wall Street protesters have been demonstrating. Among their complaints: that Wall Street financial institutions have an inordinate amount of power, both political and economic, and that Wall Street greed has been to the detriment of the 99 percent of the public the movement claims to represent.

Mr. Gupta surrendered to FBI agents after a six-count indictment was unsealed alleging his involvement in an insider-trading scheme that extended from 2008 to January 2009. The charges include conspiracy to commit securities fraud and five counts of securities fraud.

Gupta allegedly passed “material nonpublic information” about Goldman Sachs and Procter & Gamble to Raj Rajaratnam, founder of the Galleon Group hedge funds.

The inside information was worth $17 million in illegal profits and loss avoidance, according to federal documents.

Mr. Rajaratnam has been at the center of a major federal investigation into insider trading among hedge fund managers. He was convicted in May of 14 counts of conspiracy and securities fraud. Two weeks ago he was sentenced to 11 years in prison. Rajaratnam was also ordered to forfeit $53.8 million and pay a $10 million fine.

Gupta was an investor and director in one of Galleon’s investment funds that had holdings in other Galleon hedge funds, including some funds that bought or sold stock based on Gupta’s alleged insider tips. His arrest is an outcome of the investigation into Galleon Group launched five years ago at the Securities and Exchange Commission.

According to federal documents, the alleged Gupta-Rajaratnam insider-trading scam involved timely phone calls placed by Gupta informing Rajaratnam of financial developments likely to affect the relevant company’s stock price.

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