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.
For example, on Sept. 23, 2008, Gupta learned in a telephone meeting of the Goldman Sachs board that Berkshire Hathaway would make a $5 billion investment in the company. The news came at a time of substantial turmoil in the financial markets following the collapse of Lehman Brothers.