Rajat Gupta, the former head of the elite global consulting firm McKinsey & Co., surrendered himself to the FBI on Wednesday morning, a stunning development not just for his sterling career but also the criminal case the SEC is expected to pursue. Gupta stands accused of spreading financial gossip but not making money off it himself. According to The Wall Street Journal, the core of the prosecution's case against Gupta, who was also a former director of Goldman Sachs, are phone calls to former hedge fund colossus Raj Rajaratnam, who was recently sentenced to 11 years for insider trading. According to The Journal, Gupta would call Rajaratnam minutes after he had heard sensitive information. Prosecutors caught Rajaratnam saying things on tape like, "I heard yesterday from somebody who's on the board of Goldman Sachs that they are going to lose $2 per share. The Street has them making $2.50." This sort of high-level gossip is common in every industry, and especially on rumor-driven Wall Street and the case against Gupta seems to be an attempt to crackdown. As The Journal writes, "The government is expected to argue that the relationship between the two men, who socialized and invested together, is emblematic of the back-scratching that pervades the corporate world and can sometimes veer into insider trading. Gupta's arrest has financial experts thinking about the precedent this case could set.
This type of prosecution could implicate many others, writes Azam Ahmed at The New York Times. He says it would "extend the reach of the government’s inquiry into America’s most prestigious corporate boardrooms. Most of the defendants charged with insider trading over the last two years have plied their trade exclusively on Wall Street."