- Associated Press - Wednesday, October 26, 2011

NEW YORK A former board member of Goldman Sachs and Procter & Gamble became the most prominent business executive arrested in the biggest insider-trading case in history when a securities fraud indictment was unsealed against him Wednesday.

The indictment accuses Rajat Gupta of cheating the markets with Raj Rajaratnam, the convicted hedge-fund founder who was the probe’s prime target.

Mr. Gupta, 62, of Westport, Conn., quietly surrendered early Wednesday at the FBI’s New York City office, just a few blocks north of the ongoing Occupy Wall Street demonstration against corporate greed. His attorney called the allegations “totally baseless.”

Mr. Gupta was awaiting an arraignment on one count of conspiracy to commit securities fraud and five counts of securities fraud. The charges carry a potential penalty of 105 years in prison.

The indictment unsealed in U.S. District Court in Manhattan says Mr. Gupta shared confidential information about both Goldman Sachs and Procter & Gamble at the height of the financial crisis from 2008 through January 2009, knowing that Rajaratnam would use the secrets to buy and sell stock ahead of public announcements.

In a release, U.S. Attorney Preet Bharara said Mr. Gupta broke the trust of some of the nation’s top public companies and “became the illegal eyes and ears in the boardroom for his friend and business associate, Raj Rajaratnam, who reaped enormous profits from Mr. Gupta’s breach of duty.”

Alluding to the wide scope of the prosecution, he added: “Today we allege that the corruption we have seen in the trading cubicles, investment firms, law firms, expert consulting firms, medical labs and corporate suites also insinuated itself into the boardrooms of elite companies.”

In all, 56 people have been charged in insider-trading cases since Mr. Bharara took over shortly before Rajaratnam’s October 2009 arrest. Of those, 51 have been convicted, and 21 have received sentences ranging from no time in prison to 11 years.

The prosecution for the first time employed extensive use of wiretaps to catch insider-trading suspects. If the Gupta case goes to trial, taped conversations would be key evidence, as it was in the Rajaratnam trial.

The Rajaratnam probe led to a major spinoff investigation of expert networking firms, which link employees at public companies with hedge-fund managers.

Mr. Gupta’s attorney, Gary P. Naftalis, said Wednesday that his client only had legitimate communications with Rajaratnam.

“The government’s allegations are totally baseless,” he said. “The facts in this case demonstrate that Mr. Gupta is innocent of any of these charges and that he has always acted with honesty and integrity. … We are confident that these accusations - which are based entirely on circumstantial evidence - cannot withstand scrutiny and that Mr. Gupta will be completely exonerated of any wrongdoing.”