Former McKinsey chief Rajat Gupta in FBI custody

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A former Goldman Sachs director, who also was once the global head of elite consultancy McKinsey & Co. is now in FBI custody.

Rajat Gupta, one of the most prominent business executives to be caught up in the United States government's wide-ranging insider-trading probe, had been named by prosecutors as an unindicted co-conspirator in the criminal case against hedge fund tycoon Raj Rajaratnam earlier this year.

The person familiar with the investigation, who declined to be identified because the charges have not yet been made public, said Gupta had agreed to surrender to authorities.

Gupta's attorney, Gary Naftalis, would not comment late on Tuesday on possible criminal charges, but he issued a statement echoing his previous comments that Gupta committed no wrongdoing.

"Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."

Rajaratnam, founder of the Galleon Group hedge fund, was convicted in May by a New York federal jury after a two-month trial.

On October 13, a judge sentenced him to 11 years in prison, the longest recorded for insider trading. Rajaratnam is under house arrest and was ordered to report to prison on November 28.

Gupta, 62, well-known in the business world after 34 years at McKinsey, had won a seat in 2006 on the board of Goldman. He retired from McKinsey in 2007.

Goldman Chief Executive Officer Lloyd Blankfein was called to the witness stand by the government to testify at Rajaratnam's trial in Manhattan federal court.

Blankfein told the jury that Gupta violated confidentiality at Wall Street's most powerful bank by leaking boardroom secrets.

Ellen Davis, a spokeswoman for Manhattan U.S. attorney Preet Bharara, whose office prosecuted Rajaratnam, declined to comment on Gupta's surrendering to authorities or any possible charges.

In August, Gupta and the U.S. Securities and Exchange Commission agreed to drop litigation against each other stemming from the sprawling Galleon probe, which has ensnared money managers, traders and corporate executives.

The SEC had said Gupta passed illegal tips to Rajaratnam about Goldman, including a possible multibillion dollar investment from Warren Buffett, as well as tips about Procter & Gamble Co, where Gupta was also a director.

While the SEC said in August it would dismiss its administrative proceeding against Gupta, the agency said it could still bring a case against him in a federal district court.

Phone taps

The investigation of Sri Lankan-born Rajaratnam was notable for the use of FBI phone taps. The probe ensnared several of the Galleon Group founder's South Asian friends and associates. Gupta was born in India.

The Rajaratnam trial punctured McKinsey's prized reputation for closely guarding client confidentiality - former McKinsey executive Anil Kumar pleaded guilty to criminal charges and testified against Rajaratnam.

At the trial, prosecutors played recordings in which Rajaratnam was heard discussing information he received from Gupta about Goldman Sachs.

In one recording dated October 24, 2008, Rajaratnam was heard calling David Lau, chief of Galleon's Singapore branch, and discussing a tip he got from a board member that Goldman was on its way to a surprise fourth-quarter loss, its first as a public company.

The call comes one day after the investment bank held a board meeting discussing the loss, prosecutors said.

"I just heard from somebody who's on the board of Goldman Sachs, they are gonna lose $2 per share," Rajaratnam was heard saying.

"So what he (the board member) was telling me was that, uh, Goldman, the quarter's pretty bad."