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Former Goldman Sachs director Rajat Gupta strikes back against SEC

March 18, 2011 |  1:45 pm

A former Goldman Sachs board member accused by regulators of passing along confidential corporate information is suing the Securities and Exchange Commission, arguing that the agency “unfairly and unconstitutionally” singled him out.

The SEC filed its allegations against Rajat Gupta, former head of consultancy McKinsey & Co., earlier this month. It accused him of giving inside information about Goldman Sachs to his friend and business partner Raj Rajaratnam.

59779419 Rajaratnam, former head of the Galleon hedge funds, is on trial in a Manhattan federal court on 14 counts of insider trading. He has denied any wrongdoing.

In the suit filed today in the same federal court where Rajaratnam is being tried, Gupta complained about the SEC’s decision to go after him in front of an SEC administrative judge instead of in federal court, where dozens of other defendants connected to Rajaratnam have been charged.

The suit argues that the SEC proceeding will deny Gupta a number of legal protections he would have in federal court, including a trial by jury.

Since being hit with the SEC accusations, Gupta has stepped down from his positions on a number of corporate boards, including those of Procter & Gamble and American Airlines' parent company.

The SEC alleged that Gupta had called Rajaratnam soon after Goldman Sachs and Procter & Gamble board meetings to pass along information that allowed Rajaratnam to make millions of dollars in trading gains.

Gupta’s lawyer has said Gupta did nothing wrong, and the new suit says “there is no plausible reason why Mr. Gupta would have deviated from a lifetime of probity and a career dedicated to safeguarding corporate confidences in favor of engaging in the significant and aberrational wrongdoing alleged.”

The charges have brought on a steep fall for one of Wall Street’s most storied names, and have raised questions about McKinsey’s business of serving as trusted advisor to America’s most powerful companies.

The SEC filed its charges against Gupta on the eve of Rajaratnam’s trial. Since the trial began, prosecutors have played recordings of phone calls between Gupta and Rajaratnam in which Gupta discussed unknown details of Goldman’s business plans.

In addition to the complaints about the SEC’s methods, the new suit reviews Gupta’s background as the child of a teacher and a “prominent freedom fighter” in India, and notes that “he has devoted approximately half of his time to a number of significant public service commitments.”

A spokesman for the SEC had no comment on the suit.

-- Nathaniel Popper

Photo: Rajat Gupta. Credit: Associated Press/Alessandro Della Bella.