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Former Goldman Sachs director Rajat Gupta arrested

Rajat Gupta is accused of giving inside information to Galleon Group hedge fund founder Raj Rajaratnam.

October 27, 2011|By Nathaniel Popper and Stuart Pfeifer

"Under those circumstances this might give him a defense that although he told Raj about the information, it was done so in trust and confidence and not to be used for trading," said Thomas Gorman, a partner at the Washington office of international law firm Dorsey & Whitney. "The two men do in fact have a long personal and business relationship which would support that claim.

"The government will argue that he … profited by enhancing his friendship and business relation with Raj, which is sufficient for an insider-trading claim."

Gupta surrendered Wednesday to the FBI in Manhattan at 5:15 a.m. Eastern time, a stunning fall from grace for a man who was once one of the most respected figures in corporate America. In addition to serving on the boards of Goldman and Procter & Gamble, he was a director of AMR Corp., parent of American Airlines.

Stuart Slotnick, a former prosecutor who now practices white-collar criminal defense, said the Gupta prosecution represents a widening of the crackdown on insider trading.

"Not only are they going to go after the tippees but they are going to go after the tippers," Slotnick said. "The U.S. attorney's office is not hesitant to ultimately go after people in positions of great wealth and power."

The Associated Press was used in compiling this report.

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