Rajat K. Gupta, a former Goldman Sachs Group board member and onetime worldwide director of consulting firm McKinsey, was accused of insider trading by U.S. regulators who said he passed information to Galleon Group founder Raj Rajaratnam ahead of deals including Berkshire Hathaway's $5 billion investment in Goldman Sachs.
Mr. Gupta also tipped Mr. Rajaratnam on quarterly earnings at Goldman Sachs and Procter & Gamble, where he also was a board member, according to an SEC administrative order filed Tuesday. The tips generated more than $18 million, the SEC said.
Mr. Gupta was a direct or indirect investor in some of the Galleon hedge funds at the time of the tips, the SEC said. Mr. Gupta stepped down from Goldman Sachs' board last year.
“Gupta was honored with the highest trust of leading public companies, and he betrayed that trust by disclosing their most sensitive and valuable secrets,” SEC Enforcement Director Robert Khuzami said in a statement.
“The SEC's allegations are totally baseless,” Mr. Gupta's attorney, Gary Naftalis, said in a statement. “Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder.”
Mr. Gupta has also served on the boards of American Airlines parent AMR; Harman International Industries; Genpact, the business outsourcing company; and Russia's Sberbank. The SEC did not allege any wrongdoing in connection with those companies.
Mr. Naftalis said there is no allegation that Mr. Gupta made any trades or shared in any profits. Mr. Gupta lost his entire $10 million investment in a fund managed by Mr. Rajaratnam at the time of the events, Mr. Naftalis said.
Ed Canaday, a spokesman for Goldman Sachs, declined to comment. Mr. Rajaratnam is fighting SEC and Justice Department insider-trading claims.
Among the SEC allegations, Mr. Gupta is accused of calling Mr. Rajaratnam immediately after a September 2008 conference call during which Goldman Sachs' board approved the investment by Berkshire Hathaway as well as a public equity offering. Within a minute of Mr. Gupta's call, Mr. Rajaratnam arranged for Galleon funds to purchase more than 175,000 Goldman Sachs shares, the SEC alleged.
Galleon sold the shares the following day after the information became public, making illicit profits of more than $900,000, the SEC said.
The SEC said administrative proceedings will take place to determine whether Mr. Gupta will have to pay any fines or face other penalties such as being barred from serving as an officer or director at a public company.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in New York, declined comment on whether criminal charges would be filed against Mr. Gupta.