Rajat Gupta convicted of insider trading by U.S. jury

Rajat Gupta, who reached the pinnacle of corporate America as managing partner of McKinsey & Co. and as a director at Goldman Sachs Group Inc.and Procter & Gamble, was convicted by a federal jury of leaking inside information to hedge-fund manager Raj Rajaratnam.

Gupta, 63, was found guilty of securities fraud and conspiracy by a federal jury in Manhattan today in its second day of deliberations. The trial began May 21. Securities fraud carries a maximum prison sentence of 20 years. Conspiracy carries a five-year maximum prison sentence. He will remain free on bail until his sentencing on Oct. 18.

The verdict is a victory for the office of Manhattan U.S. Attorney Preet Bharara and the Federal Bureau of Investigation in their assault on insider trading, which used tools normally employed against organized crime, including phone taps and informants.

Gupta is the most prominent of those convicted at trial or to plead guilty since the nationwide crackdown began in October 2009. To date, the U.S. has brought cases against 66 traders and their sources from Wall Street to Silicon Valley. No one has won an acquittal; six cases are pending.

Besides his tenure at Goldman Sachs and McKinsey, which he ran from 1994 to 2003, the Kolkata-born Gupta served on the boards of the Rockefeller Foundation and the Bill & Melinda Gates Foundation. He is also a co-founder of the Indian School of Business in Hyderabad.

Blankfein Testifies

He has raised millions for education and health-care programs, served as an adviser to the United Nations and counseled chief executives including Lloyd Blankfein of Goldman Sachs, who was a prosecution witness at the trial. He lives in a waterfront home in Westport, Connecticut.

“It’s an extremely significant conviction,” Richard Scheff, chairman of Philadelphia-based Montgomery, McCracken, Walker & Rhoads LLP, said in an interview before the verdict was handed down. “It doesn’t get much higher. The conviction sends the message that no one is off limits,” said Scheff, who specializes in white-collar criminal investigations.

Rajaratnam, who co-founded Galleon Group LLC, was convicted at trial last year and sentenced to 11 years in prison, a record at the time for insider-trading crimes. He’s appealing.

Gupta is the latest object lesson in what happens to business leaders who lose their bearings, said Georges Ugeux, a former New York Stock Exchange official and now chief executive officer of New York-based Galileo Global Advisors LLC.

“They start to believe they are so brilliant, they are so powerful, and they behave like they are above the law,” Ugeux said before the verdict was handed down. “There will always be people who will go over the line, but there are others who will see the price someone like Gupta has paid, and say it’s not worth it.”