NEW YORK (AP) — The July 29, 2008, phone call between two titans of Wall Street began with the old friends exchanging mild pleasantries, but then quickly turned serious and — by the government's account — criminal.

Hedge fund manager Raj Rajaratnam asked about a rumor that Goldman Sachs "might look to buy a commercial bank." On the other end of the phone, then-widely respected Goldman board member Rajat Gupta confided there was a "big discussion" on the subject at a recent meeting.

Prosecutors will try to convince a jury that the intercepted call shows Gupta was providing inside tips that gave Rajaratnam an illegal edge in massive stock maneuvers. Defense lawyers say they'll argue Gupta was a straight-shooter who only shared public information with the billionaire hedge fund boss, as devoted to raising money for charity as to Goldman's bottom line.

Jury selection is scheduled to begin Monday in federal court in Manhattan. The trial is scheduled to last up to four weeks.

The same 24-minute phone call that's central to the Gupta case helped convict Rajaratnam — a former multibillionaire born in Sri Lanka — last year in the same courthouse. The Galleon founder is serving an 11-year prison sentence, the longest ever given in an insider trading case.

Rajaratnam has been the biggest catch so far in a wide-ranging insider-trading investigation by U.S. Attorney Preet Bharara that's resulted in more than two dozen prosecutions of white collar defendants. But based on Gupta's standing in the world of finance, his trial could draw more attention — and a potential conviction could resonate farther.

Aside from his role at Goldman Sachs, the Indian-born Gupta is the former chief of McKinsey & Co., a highly regarded global consulting firm that zealously guards its reputation for discretion and integrity.

Gupta, 63, is also a former director of the huge consumer products company Procter & Gamble Co., a pillar of American industry and one of the 30 companies that make up the Dow Jones industrial average. P&G owns many well-known brands including Bounty, Tide and Pringles.

The Westport, Connecticut, resident has pleaded not guilty to one count of conspiracy to commit securities fraud and five counts of securities fraud, charges that carry a potential penalty of 105 years in prison. He remains free on $10 million bail.

Prosecutors in effect previewed their case against Gupta at the Rajaratnam trial.

Jurors heard testimony that at an Oct. 23, 2008, Goldman board meeting, members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999.

Prosecutors produced phone records that they said show Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning and save millions of dollars.

Rajaratnam also earned close to $1 million when Gupta told him that Goldman had received an offer from Warren Buffett's Berkshire Hathaway to invest $5 billion in the banking giant, prosecutors said.

Also played at trial was the tape of Rajaratnam grilling Gupta about whether the Goldman Sachs board had discussed acquiring Wachovia or an insurance company.

"Have you heard anything along that line?" Rajaratnam asked Gupta.

"Yeah," Gupta responded. "This was a big discussion at the board meeting."

Prosecutors sought to maximize the impact of the Gupta tape by calling Goldman Sachs chairman Lloyd Blankfein to testify that the phone call violated the investment bank's confidentiality policies. Prosecutors say Blankfein will return to the stand at Gupta's trial.

At a recent hearing, Gupta's lawyers argued that the jury would need to hear more about their client's life story to give the allegations context.

"He's done all these wonderful things. And they would say that one day out of a clear blue sky in the seventh decade of his life, he decides to become a criminal," said attorney Gary Naftalis.

The judge ruled that Gupta's charitable works could be referenced, but only if he testified. Naftalis refused to divulge whether he will.

Gupta's reputation for giving wasn't lost on Rajaratnam. Near the close of their recorded phone call, the crooked hedge fund manager remarked, "You've been spending a fair amount of time doing charity."

"Yeah," was Gupta's only response.

___

Associated Press writer Larry Neumeister contributed to this report.

Another Goldman Sachs name has been connected to the investigation of insider trading at defunct hedge fund Galleon Group.

Federal prosecutors and Securities and Exchange Commission officials are reportedly looking into whether a senior Goldman investment banker, Matthew Korenberg, fed inside information to a Galleon Group portfolio manager named Paul Yook, according to separate reports in the New York Times and the Wall Street Journal.

Investigators are said to be looking into whether Korenberg, who was based in California, passed non-public information to Yook about pending healthcare industry mergers -- including the 2009 Abbot Laboratories acquisition of Advanced Medical Optics. Korenberg has not formally been accused of any wrongdoing, the Times reports.

“For more than two years, the government has pursued an investigation with nothing to show for it,” Korenberg's attorney told the NYT. “There has never been any allegation of any tipping or insider trading by Matt Korenberg.”

The inquiries are part of an ongoing, three-year investigation into alleged insider trading activities involving Galleon. The hedge fund closed in October of 2009 after the firm's founder, Raj Rajaratnam and a number of his colleagues, were arrested on insider trading charges.

This past October, Rajaratnam was convicted and sentenced to 11 years in prison. Since then, the investigation has continued as federal officials seek to find who, outside of Galleon, was part of an alleged network of conspirators offering inside corporate information to Rajaratnam for use in his trading activities.

So far, three Goldman Sachs employees -- Korenberg, a salesman named David Loeb and a technology stock analyst named Henry King -- have come under scrutiny, as the Times points out. What is still unclear is whether other Goldmanites were involved too.

Last month, at a pre-trial hearing for Rajat Gupta (the former McKinsey & Company executive and Goldman director who is on trial for allegedly feeding inside information to Galleon), Gupta's lawyer told the court that a different Goldman employee was feeding Rajaratnam confidential tips about Intel Corp. and Apple, though he did not identify the person in question. It is unclear whether that person is one of the three named Goldman employees under scrutiny.

Last week, it also emerged in a pre-trial hearing that federal prosecutors in California were looking into whether a different Goldman executive leaked inside information about two companies to Galleon, as the Times reported. It is still not explicitly clear whether the employee mentioned last week is one of the three already named Goldmanites or whether it is also a separate person.

Gupta's defense could be bolstered by the suggestion that there were other contacts inside Goldman feeding inside information to Rajaratnam, the NYT points out.

By Grant McCool

NEW YORK (Reuters) - A person at Goldman Sachs Group Inc, who has not been identified or charged in a broad U.S. insider-trading probe, was caught on a wiretap leaking secrets about Intel Corp and Apple Inc, a lawyer for former Goldman board member Rajat Gupta said in court on Friday.

Lawyer Gary Naftalis, in a heated exchange with U.S. prosecutor Reed Brodsky during a pre-trial hearing, said the Goldman person leaked confidential information about the two companies to Raj Rajaratnam, the Galleon Group hedge fund founder convicted of insider-trading charges last year.

Gupta, the best-known corporate executive accused in a sweeping prosecution of insider-trading at hedge funds in recent years, denies criminal charges that he tipped Rajaratnam with Goldman Sachs and Procter & Gamble Co secrets between 2007 and 2009. His trial is scheduled to begin in May.

"In a letter he (Brodsky) said the government had a person who provided confidential information to Raj Rajaratnam about Apple and Intel," Naftalis said. "There is also wiretap evidence, substantial evidence of another source at Goldman Sachs."

Naftalis told U.S. District Judge Jed Rakoff that the defense believed "there is a much more circumstantial case that person should be sitting in the box rather than us" and "the wrong man is on trial here."

A theme of Gupta's defense is that the charges brought by U.S. prosecutors last October are circumstantial and that Rajaratnam had a host of sources tipping him with information. A jury convicted Rajaratnam largely on wiretaps, which traditionally have been used in organized crime and narcotics cases, not white-collar investigations.

Rajaratnam, once a friend of Gupta's, is serving an 11-year prison sentence. Gupta was onetime global head of McKinsey & Co and sat on the boards of several companies.

The judge ended the late afternoon hearing in Manhattan federal court, but Brodsky and Naftalis continued to argue. Brodsky declined to comment.

A Goldman Sachs spokesman, Michael DuVally, declined to comment.

Goldman has been in the spotlight this week with the public resignation of employee Greg Smith, who said in a New York Times op-ed that Goldman had become "as toxic and destructive as I have ever seen it" and was a place he no longer wished to work.

A person familiar with the Gupta case said in early March that prosecutors are investigating David Loeb, a managing director of Goldman Sachs. Loeb works with technology hedge-fund employees, including an Asia-based analyst, Henry King, who is also under investigation, according to another source briefed on the case.

The sources declined to be identified because the matter is not public. Neither Loeb nor King has been accused of any wrongdoing and neither responded to emails asking for comment.

The insider-trading case has drawn in Goldman Sachs Chief Executive Lloyd Blankfein, who was interviewed under oath on February 24 as a witness, according to court documents.

Blankfein testified for the government at Rajaratnam's trial. He is also expected to be called as a witness by the government at Gupta's trial.

The cases are USA v Gupta in the U.S. District court for the Southern District of New York No. 11-907

(Editing by Andre Grenon, Gary Hill)

The Securities and Exchange Commission might be taking a closer look at common Wall Street practices that occupy an ethical gray area.

Certain routine conversations in the business world carry the potential for abuse, and can often be "troubling," David Rosenfeld, co-head of enforcement at the SEC's New York office, told a group of legal and financial practitioners earlier this month, according to Fox Business News. Some see the comments as a hint that the SEC may consider "expanding the definition of insider trading," according to the report

The SEC has been taking an aggressive stance against insider trading in recent months, with Chairman Mary Schapiro calling it a "problem of tremendous magnitude," and the agency filing more than 100 cases related to insider trading between 2010 and 2011.

Among the SEC's highest-profile cases ever was the successful prosecution of Raj Rajaratnam, a hedge fund billionaire who thanks to inside information made lucrative trades of Goldman Sachs and Google stock, among others.

At the same time, critics of the SEC say the agency's focus is misplaced, and that it has done little to punish the people and institutions that helped bring about the financial crisis of 2008 -- a near-meltdown of the national banking system in which insider trading played a relatively minor role.

For its part, the SEC says it has shifted its approach to financial-crisis prosecution cases in order to generate more charges that might stick. Meanwhile, the agency has pointed to its own record on insider-trading cases as proof that it is serious about stamping out financial misconduct.

SEC representatives have also complained that the agency simply doesn't get enough federal funding to be as effective as it could be. In 2011, the budget for the SEC was $1.185 billion.

A spokesman for the SEC has indicated that Rosenfeld's remarks this month don't necessarily point toward an expansion of the agency's definition of insider trading.

Poor Raj Rajaratnam. He's the billionaire hedge-fund manager who in October was sentenced to 11 years in prison for trading stocks on nonpublic information obtained from corporate insiders. If only his sources had been members of Congress or their staff and the nonpublic information had concerned pending legislation likely to affect certain stock prices, he would still be in business.

For it is perfectly legal for lawmakers and other federal officials to divulge information that, if made public, would be market-moving and thus gives anyone who trades on it a lucrative advantage over other investors. In fact, large hedge funds -- important donors to political campaigns -- aggressively seek such information, with some success, in private meetings with legislators and other officeholders.

For example, the Wall Street Journal recently reported that, in a December 2009 meeting with key lawmakers, a small group of hedge funds learned -- hours before it was announced -- that Senate Democrats had eliminated a proposed government-run insurance plan from the health-care reform bill. Although the hedge funds would not say how they used the information, the Journal notes that the news "was potentially worth millions of dollars to the investors," since it would boost shares of major health insurers, with whom the government plan would have competed.

Similarly, in January 2010, as the Senate debated the Dodd-Frank bill, which tightened financial services regulation, several hedge-fund managers met with Senator Dodd and discovered that, contrary to prevailing opinion, he did not favor capping fees on debit-card purchases. The expectation of a fee cap had been a drag on shares of Visa and Mastercard, since it would hurt their revenues. This material (or market-moving) news of Senator Dodd's position garnered by the hedge funds remained nonpublic for weeks.

Even though such activities are legal, it's hard to see them as ethical. From a moral point of view, they are no different from a kind of insider trading prohibited by law. In both cases, people whose positions in economically significant organizations give them access to market-moving, nonpublic information selectively pass it on to others who then carry out unfair market trades with counterparties ignorant of the traders' covert advantage.

The legal difference is that, unlike government officials, when corporate executives give inside information to others who trade on it, they violate a fiduciary duty to serve the best interests of their companies' shareholders. It is the breach of that legal duty that makes both the disclosure and the use of inside information criminal acts.

Congress appears ready to address this disparity. Last week, the Senate passed the Stop Trading on Congressional Knowledge (STOCK) Act, which declares that members of Congress and thousands of other federal workers are legal fiduciaries. Whereas corporate managers' fiduciary duty is to their stockholders, these government officials would have an analogous duty to Congress, the government, and all U.S. citizens. Ostensibly, if this provision becomes law, it will be illegal for covered officials to share material, nonpublic information with others they know are likely to trade on it.

But even if the bill is enacted in its current form, it almost certainly will not keep members of Congress and their aides from disclosing high-value information to hedge funds in private conversations. For one thing, what prosecutor could plausibly argue that a government official has the very same duty of "trust and loyalty" that a corporate manager has? The nature of federal officials' relationships with their institutions and fellow citizens is radically different -- in numerous ways -- from that of a business executive to her firm's shareholders. In any event, it is preposterous to think it would ever be Congress's intent that a law it passed prevent its members from consulting with investors for fear of revealing nonpublic information on which the investors might trade.

If there is an ethical disconnect here, what can be done about it? In the late 1990s, the Securities and Exchange Commission came under pressure from "Main Street" investors and shareholder advocates to stop public corporations from giving advance releases of earnings forecasts and other material information to favored investors before making it public. The SEC responded by adopting Regulation Fair Disclosure (Reg FD), which stipulates that, when a corporation provides market-moving information to any investors, it must make it available to all investors at the same time.

In approving Reg FD, the SEC argued that it is inherently unfair for only a few investors to receive material information and that the practice undermines the public trust in the fairness of financial markets. Clearly, if these arguments justify Reg FD, then they warrant a parallel requirement on government officials.

Of course, legislators and regulators need to discuss public policy matters with investors, including hedge funds. But why should members of Congress and other federal insiders be excepted from the same demand for fair disclosure the government has imposed on corporate officials?

Perhaps that's a question voters should be asking Senate and House candidates.

Rajat Gupta went from a guest at President Obama's first state dinner and well-respected titan of finance to a disgraced figure facing criminal insider trading charges in just a few short years. But his friends say the fall from grace isn't deserved.

In response, they've launched a site called friendsofrajat.com featuring testimony from -- you guessed it -- some of Gupta's personal friends, ranging people with which he grew up in India to colleagues during various parts of his career. Federal prosecutors recently expanded their case against Gupta, the former head of McKinsey and Company and an ex-Goldman Sachs director, criminally charging him with giving four illegal tips to Raj Rajaratnam, a hedge fund founder now spending 11 years in prison on insider trading charges.

Atul Kanagat, a friend of Gupta's from his time at McKinsey, said the site came out of a gathering of about 30 of Gupta's friends in the fall of last year. Kanagat, who manages the site, said the people posting aren't commenting on the legalities of the case, instead they're countering portrayals of Gupta's character that they view as unfair.

"It's tough to be totally objective," Kanagat said. "Do good people sometimes do bad things? Is he one of those? It's impossible for me to know because he knows what he knows. On the other hand, the caricature they created of him was just completely false."

The posters on the site seem to think that regardless of the charges against Gupta, he's still a man of integrity. Federal prosecutors have portrayed Gupta as part of a culture of elite business men that traded secrets for friendship and prestige.

The site includes effusive claims about Gupta, calling him "a very warm and humane individual." Another poster claims "Had he been inclined to such dubious actions, he would have indulged in them much sooner and his career graph would not have reached the heights it has -- against all odds."

Kanagat said he receives about three to five communications per day about posting on the site. Though the site has been subject to some pranks, including people posting testimonials attached to the names of Simpson's characters, Kanagat said the response has been largely positive.

"The mud that's been poured on his character is painting a portrait of the man that is unrecognizable to the people that know him and admire him," he said.

Federal prosecutors have arrested seven hedge fund workers, alleging that they were part of a "tight-knit circle of greed" that took home nearly $78 million in illegal profits.

The scheme included one $53 million trade -- the largest transaction ever to lead to a Manhattan prosecution -- and came mostly from tips from one employee at Dell. The arrests are the latest in a recent government crackdown on insider trading. Four men were charged with conspiracy to commit securities fraud, among other charges, while three analysts who were charged in other documents, have already plead guilty and are cooperating with the government.

The claim, "describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information," Preet Bharara, the United States Attorney for the Southern District of New York said according to prepared remarks. "It was a club where everyone scratched everyone else's back."

The probe is part of a larger continuing investigation that resulted in the arrest and recent conviction of Galleon hedge fund founder Raj Rajaratnam on 14 counts of securities fraud and conspiracy. Rajaratnam is currently serving an 11-year prison sentence and was ordered in November to pay a record $92.8 million in a related civil case.

Though prosecutors are touting the recent arrests as part of their "continuing efforts to ensure fair play on Wall Street," a November report found that federal prosecution of financial crimes was on track to fall to a 20-year low. The report compiled Justice Department data obtained through a Freedom of Information Act request and found that 2011's low level of prosecutions is the continuation of a trend spanning more than a decade.

One explanation for the drop in prosecutions could be a boost in deferred prosecution agreements, which allow companies to voluntarily report their own misconduct and sidestep harsher punishments in court. The Justice Department and the Securities and Exchange Commission have adopted deferred prosecution agreements in 2008, according to The New York Times.

The lack of prosecutions in the wake of the financial crisis has stoked anger among critics including the Occupy Wall Street movement. Government officials haven't successfully prosecuted a single Wall Street executive or financial firm for their role in the meltdown.

And it's pretty unlikely that financial executives will be prosecuted for their actions during the financial crisis going forward. A former top investigator told the Wall Street Journal last month that prosecution of financial executives is "better left to regulators" to take civil actions.

(Adds details, NEW YORK to dateline, byline)

* Level Global co-founder Chiasson to surrender

* Former Diamondback trader Newman arrested

* Hedge fund firms raided in 2010

* More than 50 people accused in overlapping probes

By Basil Katz

NEW YORK, Jan 18 (Reuters) - At least two senior hedge fund employees were being arrested as part of the government's sweeping probe into insider trading, people familiar with the matter said on Wednesday.

The arrests reflect a widening of the government's long-running probe into the alleged sharing of confidential information on publicly traded corporations with hedge fund managers and analysts. In the biggest case so far, onetime billionaire Raj Rajaratnam was convicted of insider trading and is now serving an 11-year prison term.

Anthony Chiasson, who co-founded the Level Global Investors hedge fund, is among those expected to face charges, and is turning himself in to authorities, one of the people said.

Todd Newman, who headed technology trading for Diamondback Capital Management from Boston, has also been arrested, another person said.

Newman had been placed on leave of absence in 2010 and subsequently was let go by that firm. Reuters in November reported the government's interest in Newman.

Overall, charges against at least four people are expected to be unveiled on Wednesday, the people said. The charges are expected to be filed in U.S. District Court in Manhattan.

Jon Horvath, who is currently employed at Sigma Capital Management, a unit of Steven A. Cohen's $14 billion hedge fund SAC Capital, was also arrested, one of the people said. A spokesman for SAC Capital could not immediately be reached for a comment. The identity of the fourth person could not immediately be confirmed.

The people declined to be named because of a lack of authority to speak about the arrests. Lawyers for Chiasson, Newman and Horvath did not immediately respond to requests for a comment or could not immediately be reached.

More than 50 people have been arrested or charged in overlapping federal insider trading probes that were first unveiled in October 2009. Most of these people have pleaded guilty or been convicted.

Many of the cases have been based at least in part on the use of government wiretaps authorized by federal judges.

Four hedge fund firms -- Level Global, Diamondback, Loch Capital Management and Barai Capital Management -- were raided by the FBI in late 2010 as part of the insider-trading probe. Level Global, Loch and Barai have since folded.

Rajaratnam, founder of the Galleon Group, remains the best-known investor implicated in the probe. A jury convicted him of fraud and conspiracy charges last May.

Rajat Gupta, a former chief of the consulting firm McKinsey & Co and director of both Goldman Sachs Group Inc and Procter & Gamble Co, has been charged with providing illegal tips to Rajaratnam. He is fighting those charges. (Additional reporting by Matthew Goldstein and Jonathan Stempel in New York, and Svea Herbst-Bayliss in Boston; Editing by Martha Graybow and Maureen Bavdek)

NEW YORK (Reuters) - A federal judge ordered Raj Rajaratnam, the Galleon Group hedge fund founder sentenced to 11 years in prison for insider trading, to pay a record $92.8 million penalty in a related Securities and Exchange Commission civil case.

The penalty imposed by U.S. District Judge Jed Rakoff in Manhattan is in addition to the $63.8 million that Rajaratnam's lawyers said their client has already paid in his criminal case, including $53.8 million that was forfeited and a $10 million fine.

A federal jury in May convicted Rajaratnam of 14 counts of securities fraud and conspiracy in the criminal case.

Rakoff's colleague, U.S. District Judge Richard Holwell, last month imposed the 11-year prison term, the longest recorded U.S. sentence for insider trading. Rajaratnam is scheduled to begin his term on December 5.

The SEC said Rajaratnam's civil penalty is the largest against an individual in an insider trading case brought by the regulator, including in its 1980s cases against stock trader Ivan Boesky and junk bond financier Michael Milken.

Rakoff said a severe civil penalty for Rajaratnam was needed to make clear that insider trading should be "a money-losing proposition" for all who consider it.

He also said such a penalty was appropriate because the net worth of Rajaratnam, a former billionaire, "considerably exceeds" the penalties in the criminal case.

"When to this is added the huge and brazen nature of Rajaratnam's insider trading scheme, which, even by his own estimate, netted tens of millions of dollars and continued for years, this case cries out for the kind of civil penalty that will deprive this defendant of a material part of his fortune," Rakoff wrote.

Akin Gump Strauss Hauer & Feld, the law firm representing Rajaratnam, declined to comment, a spokeswoman said.

LARGEST INSIDER TRADING PENALTY

SEC enforcement chief Robert Khuzami in a statement said the penalty "reflects the historic proportions of Raj Rajaratnam's illegal conduct and its impact on the integrity of our markets."

Boesky in 1986 agreed to a $50 million civil penalty and give up $50 million of illegal profit to settle with the SEC, while four years later Milken gave up $400 million of illegal profit. Milken also accepted a $200 million criminal fine.

Rakoff said he arrived at Rajaratnam's penalty by tripling a "base figure" for ill-gotten gains or avoided losses by Rajaratnam from alleged insider trading in shares of Intel Corp , Akamai Technologies Inc , ATI Technologies Inc, Clearwire Corp and PeopleSupport Inc.

While Rakoff chose Rajaratnam's $30.9 million estimate for the base figure rather than a higher sum proposed by the SEC, he said even the lower base figure would "still fulfill all the purposes of a civil penalty in this case."

The SEC had sought a $96.4 million civil penalty, a lawyer for the regulator said at an October 28 hearing. Galleon settled with the SEC last month.

Last month, prosecutors and the SEC filed charges against Rajat Gupta, a former Goldman Sachs Group Inc director and global head of the McKinsey & Co consulting firm, for allegedly providing Rajaratnam with some of his tips. Gupta pleaded not guilty in the criminal case.

The case is SEC v. Galleon Management et al, U.S. District Court, Southern District of New York, No. 09-08811.

(Reporting by Jonathan Stempel and Grant McCool in New York; Editing by Matthew Lewis, Bernard Orr)

Copyright 2011 Thomson Reuters. Click for Restrictions.

It's supposed to be an ad about cricket. Two Sri Lankans on safari are egged on by their driver to get off the bus to take pictures of a tiger. When the tiger gets pissed off and rises to its feet, the driver starts reversing and the ad fades to the tagline "It's difficult to be a Sri Lankan in India."

It's a joke. But Raj Rajaratnam isn't smiling.

The Sri Lankan American hedge fund billionaire is feeling aggrieved -- and not just because he's been found guilty of all 14 counts of insider trading.

The hedge fund billionaire is mad at his friends, or more specifically his Indian friends, for throwing him to the tigers.

"Every bloody Indian co-operated (to nail me) -- Goel, Khan, Kumar" Rajaratnam, a Sri Lankan American, told writer Suketu Mehta in an article in Newsweek.

Rajiv Goel was his Wharton classmate. Rajaratnam loved his wife's chaat. Roomy Khan was his employee at Galleon, his hedge fund. Anil Kumar was another Wharton friend and McKinsey employee. His son worked one summer at Galleon.

Little Brother betrayed

Rajaratnam wants to turn the narrative of his fall from grace to be one about inter-cultural treachery, not personal failings -- "a man from a smaller South Asian country seduced and betrayed by the Big Brother country."

Hmmm. Sorry, Mr. Rajaratnam I don't think that 'Et tu, Brute?' sob story flies. There is no reason to believe that had Rajaratnam been an Indian, the Goels and Khans and Kumars would have closed ranks around him in some Indian blood brother pact of silence. Or that they should have.

But the Rajaratnam story does reveal the strange and precarious position India's little brothers occupy in our imagination.

In The World According to India, a cartoon by Siddharth Singh that recently went viral on the social media networks, Sri Lanka is summed up in one sentence.

"Tiny as shit but can play great cricket. Also, Ravan lived here."

Nowhere is India's swagger more apparent than in the US, where South Asia is just a long-winded way to say India.

South Asian=Indian (except when it's not)

So you could have a South Asian film fest that's almost all Indian films or a South Asian group on campus with one lonely Nepalese person holding up the "rest-of-South-Asia" banner. If there is a board looking for a South Asian member, chances are that member will be Indian.

Indians will say the other South Asians are just being too sensitive. But Indians are loath being clubbed together with other South Asians, say 'Pakis' in Britain. And other than notable exceptions like SAALT (South Asian Americans Leading Together) you won't see too many Indians speaking up when other South Asians come under attack.

Desi boys club

When Rajaratnam was snared, an article in the Daily Beast promptly talked about "the insularity" of desis on Wall Street, the "ethnic clubbiness." As if that was any different than the WASP old boys club that had closed off the upper echelons of Wall Street to people like Rajaratnam. In that case we just called it networking.

But what is truly tragic and poignant about the downfall of Raj Rajaratnam is how hard he tried to belong to that Indian club.

He not only hired Indian friends, leaned on them for tips and went on holidays with them, he put his money where his mouth was. He gave $250,000 a year for three years to South Asian Youth in Action, a Queens-based NGO. He gave a million dollars to start an Indian School of Business in Hyderabad because Anil Kumar and Rajat Gupta asked him.

"I later found out they never contributed any of their money, and are listed as the school's founders," he said bitterly. "And I'm not even a fucking Indian."

I'd bet my money that Rajat Gupta, philanthropist that he is, would not give a million dollars to set up a Sri Lankan School of Business in Colombo.

Good guy, Bad guy

Instead there is already the beginning of the subtle narrative that will present Rajat Gupta as the person who gave his friend tips but didn't really benefit from them. "It is not criminal. He never benefited," said Washington-based philanthropist Mahinder Tak to News India Times. In fact, Gupta even lost a $10 million investment in a fund Rajaratnam managed.

Stay tuned for the rehabilitation of Rajat Gupta somewhere along these lines:

From available reports the prosecution has not sought to establish this, a fact which alone enhances the prospects of acquittal for Gupta. Let us hope that this happens, because he has an unsullied record. The fact that he was elected thrice to lead McKinsey, one of world's leading consulting firms, by its partners and the first non-American to be so chosen is proof enough that he is a professional to the core who will not commit the indiscretions of the kind attributed to him.

But there is nothing left unsullied here -- no good, just the bad and the ugly.

Betrayed

This, in the end, is a story about betrayal all around.

If all that mass of wiretap evidence is true, Raj Rajaratnam betrayed every code of business ethics out there.

His Indian friends were happy to holiday with him as long as things were good but betrayed him when the going got tough.

Rajat Gupta allegedly betrayed the trust of the corporations who entrusted him with their secrets.

The whole sorry story betrays the hard-earned image of the hardworking honest immigrant, built up by countless cab drivers, gas station attendants and H1-B software engineers. Instead now we have the narrative of the immigrant who comes from countries where rules are elastic and their upstanding children like who grow up in America imbibing a different value system.

But the biggest betrayal is that of a dream of exactly what the Daily Beast derides -- a high profile desi boys club with true clout. Not for ill-gotten gains but one that could have broken the glass ceiling, that could have nurtured, supported, and mentored other desis without thinking about national origin.

Instead we have the sorry spectacle of a South Asian cabal that stabbed each other in the back.

A longer version of this blog appeared on Firstpost.com.

NEW Delhi (Annie Bannerjee) -- Before Indra Nooyi became CEO of PepsiCo Inc or Vikram Pandit took the reins at Citigroup Inc there was Rajat Gupta, the original "global Indian" who was the first to head a major Western business.

More than 17 years after first being elected head of McKinsey & Co, the management consultancy, Gupta was charged last week in part of the same insider trading investigation that saw his friend, hedge fund manager Raj Rajaratnam, sentenced to 11 years in prison, the longest-ever sentence in such a case.

For hundreds of thousands of bright young men and women from India's huge middle class, Gupta and later Pandit and Nooyi were role models -- case studies of how learning and old-fashioned hard work could lead to success on a global scale.

"He kind of came to epitomize, if not exactly a rags-to- riches story, but more of how a person from a relatively humble background, out of sheer hard work and merit, could really rise to the top of the ladder," said Paranjoy Guha Thakurta, a political commentator.

Gupta was born in 1948, a year after India's independence, in what was then Calcutta and is now Kolkata. His journalist father moved the family to the capital New Delhi when he was five.

The young Gupta attended the prestigious Modern School, a sprawling campus in the center of the city, on a scholarship and his classmates included the sons and daughters of India's elite.

His father died when he was 16 and his mother, a Montessori school teacher, died two years later, leaving Gupta and two sisters and a brother on their own.

If anything, being orphaned made him even more determined to succeed. Gupta stood out as a student, ranking 15th out of thousands in the entrance exam for the Indian Institute of Technology (IIT) in 1966, according to a Business Today profile.

The IIT entrance is fiercely competitive and at the time was one of the few paths to professional opportunity in India.

He took a place at the IIT's Delhi campus, earning a degree in mechanical engineering, perhaps the best professional qualification in the land in the early 1970s.

It was success against a challenging background that made Gupta's story compelling to many in India.

"Everybody cannot be born into an Ambani family," said Sarthak Prakash, 24, a graduate business student at IIT-Delhi, referring to the Ambani brothers who fought over a multi-billion-dollar empire inherited from their father.

"Some of us will be born as middle-class people in Gupta families and we will have to study and pay our own way."

DRAMATIST

Other than the success, there was nothing extraordinary in Gupta's early years. He was fairly typical for someone from Bengal, a part of India that traditionally prizes learning, debate and the arts more than wealth.

In interviews later in his career, Gupta used to quote from the Bhagavad Gita, which encapsulates the wisdom of India's ancient Vedic knowledge, especially the principles by which life should be lived.

At the IIT, he was a debater and a keen amateur dramatist. At a play rehearsal he met Anita Mattoo, a Kashmiri from northern India. They married in 1973.

Offered a job at cigarette maker ITC Ltd, then about the most sought-after employment for a young graduate, Gupta instead opted to go to Harvard Business School, where he was a Baker Scholar, an honor bestowed on the top 5 percent of the MBA class.

He joined McKinsey after Harvard and rose to lead the partnership's operations in Scandinavia before becoming global head in 1994.

While at McKinsey, he co-founded the Indian School of Business, a graduate school in the southern city of Hyderabad that quickly became an elite institution in education-mad India. He also co-founded the American India Foundation.

Gupta completed three terms as managing director of McKinsey in 2003 and retired in 2007, a lifer in a firm many use as a stepping stone to Wall Street or the corporate world.

However, he was only getting started in a variety of advisory, philanthropic and investment roles that leveraged his formidable networking skills and ultimately got him in trouble.

Gupta, now 62, is accused of leaking secrets of Goldman Sachs and Procter & Gamble, where he was a director, to the Sri Lankan-born Rajaratnam, who founded the Galleon Group. On Wednesday, Gupta pleaded not guilty to all charges and was freed on $10 million bail.

"I'm really saddened by this turn of events because regardless of the outcome, he's done a lot for the world, and for India in particular," said Pramod Bhasin, vice chairman and former CEO of back office services firm Genpact, where Gupta was chairman before resigning in March.

EMBRACES BEING INDIAN

India has a large and prosperous diaspora that is a source of national pride, with the exploits of overseas Indians a regular feature of Indian media.

Although he holds a U.S. passport and has lived outside India for four decades, Gupta embraces being Indian. He often quotes from Indian philosophy and literature, even to Western groups, and breaks into Hindi or Bengali around Indians.

"He was one of those people who, despite having reached a very high level, used to carry his Indian-ness with a certain self-confidence," said Pramath Sinha, a former McKinsey partner.

"He was genuinely happy to talk about India or to discuss India rather than disown India, which sometimes Indians who have been very successful tend to do," he said.

Charming and persuasive, impeccably dressed and well-coiffed, Gupta was known in the United States as a master networker who was a prolific joiner and leader of boards and committees, becoming the quintessential insider and rubbing shoulders with the likes of Bill Gates and Bill Clinton.

People who know him say Gupta has personal warmth and a knack for connecting with people, taking an interest in their careers and families. Not a back-slapper or a joker, Gupta likes small groups and tends to steer conversation toward topics in which he takes a professional or philanthropic interest.

Gupta and his wife raised their four daughters in a waterfront mansion in upmarket Westport, Connecticut. The house is now security for his bail.

"He has what every Indian seeks, which is recognition, respect of the mind," said Suhel Seth, a marketing expert and commentator.

He also has money, but perhaps not as much as he wanted. Gupta is a millionaire but he hobnobbed with billionaires and multi-millionaires, including Rajaratnam, with whom he invested.

Despite his fairly straight-laced upbringing, Gupta is widely viewed as motivated by a desire to become extremely rich.

"Here he sees an opportunity to make a hundred million dollars over the next five years, or 10 years, without doing a lot of work," Rajaratnam said of Gupta in a recorded phone call played during the hedge fund manager's trial in New York.

Sinha takes issue with the portrayal of Gupta as driven solely by greed, noting he was interested in helping others and motivated by new challenges.

"I know it is hard to argue, and I think that with all the money that he was investing with Raj and so on, it seems like that's what he wanted to do," said Sinha. "Obviously, there was a lapse."

Copyright 2011 Thomson Reuters. Click for Restrictions.

This week, Newsweek profiled Raj Rajaratnam, the ex-chief of the Galleon Group hedge fund recently convicted of insider trading. One paragraph caught my attention:

The whole story speaks to the South Asian-American community: its pursuit of success and money at any cost; the differences between immigrants and the first generation; and the immigrants' incomplete understanding of the rigor of the law in the U.S.

Not one to shy away from good empiricism, I did a quick test. Like Rajaratnam, my parents are South-Asian American and they are immigrants. I called them for their thoughts on the pursuit of success and on insider trading laws. Turns out, they think heedless ambition is wrong and they think insider trading is illegal. Go figure.

My example illustrates the article's error: In this paragraph, the character of the group is judged by the actions of an individual. That puts other members of the group at risk of being painted with the same broad brush. That's how prejudice operates. When race is involved, it's called racism. It can happen unwittingly, but whenever it happens, it needs to be called out for what it is.

The paragraph hasn't generated much heat. In fact, no one but a few commenters seems to have noticed. But what if the paragraph were rewritten to read:

The whole Bernie Madoff story speaks to the Jewish community: its pursuit of success and money at any cost; the differences between Jewish people and other Americans; and the Jewish people's incomplete understanding of the rigor of the law in the U.S.

The response would be thunderous, and appropriately so. That's because the disease of prejudice doesn't stay easily confined. It spreads and takes alternate forms: discrimination and differential treatment. This isn't a new phenomenon. We've seen this horror movie many times before.

So why the muted reaction in this instance? I can hazard a guess: The negative stereotypes go unnoticed because South-Asians are considered a minority success story. And without deep historical wounds to serve as a gut check, paragraphs like the one above are given a pass. This is the dark side of the "model minority" myth. It's the view that says it's okay to traffic in group judgment if the group is doing alright for itself.

It's a flimsy argument, if one can even call it that. In some cases, those making the claim don't know any better. But this piece ran in Newsweek. The editors there know better. The author is a South-Asian, a Pulitzer finalist, and a professor of journalism at NYU. He knows better, too.

The editors may have used a light touch because the author himself is South-Asian. Surely he couldn't be prejudiced against his own kind? We can't know for certain. What we do know is that he is an accomplished writer. We know he teaches budding journalists the trade. If anyone should be on guard for gross generalizations, it's him.

I'm willing to grant him the benefit of the doubt. In the rush to release a high-profile interview, the author and his editors forgot to dot their i's and cross their t's. Mistakes happen, and if that's what it was, they need only come out and apologize for the error.

But if it's not a mistake, then it should give us all pause. The paragraph's last line -- "the immigrants' incomplete understanding of the rigor of the law in the U.S." -- rang familiar. I had read a line like it recently. Slate's William Saletan dug it up: "Minorities... as a people (though there are always exceptions to the rule) are incapable of maintaining or even comprehending the rule of law and order." The sentence comes from the "law enforcement" section of a chapter website of the White Knights of the Ku Klux Klan.

NEW YORK (AP) -- A former Goldman Sachs board member on Wednesday surrendered to federal authorities to face criminal charges stemming from a massive hedge fund insider trading case.

Rajat Gupta appeared in Manhattan federal court. The charges were not immediately disclosed.

The Securities and Exchange Commissioner originally brought civil fraud charges against Gupta in March. The SEC alleged that, at the height of the financial crisis, he passed along privileged financial information that helped enrich Raj Rajaratnam, a former billionaire hedge fund manager who was the prime target of the criminal probe.

Gupta's lawyer responded by accusing the SEC of launching a "flawed case premised in large part on unreliable evidence being used in an attempt to bring down a man of sterling reputation and remarkable achievements without the procedural safeguards historically accorded to all persons similarly charged."

The Indian-born, Harvard-educated Gupta also has served on the boards of Procter & Gamble and the parent company for American Airlines. He was a guest at President Barack Obama's first state dinner.

Gupta's name played prominently at the criminal trial earlier this year of Rajaratnam, who was convicted after prosecutors used a trove of wiretaps on which he could be heard coaxing a crew of corporate tipsters into giving him an illegal edge on blockbuster trades.

Jurors heard testimony that at an Oct. 23, 2008, Goldman board meeting, members were told that the investment bank was facing a quarterly loss for the first time since it had gone public in 1999.

Prosecutors produced phone records showing Gupta called Rajaratnam 23 seconds after the meeting ended, causing Rajaratnam to sell his entire position in Goldman the next morning and save millions of dollars.

Rajaratnam also earned close to $1 million when Gupta told him that Goldman had received an offer from Warren Buffett's Berkshire Hathaway to invest $5 billion in the banking giant, prosecutors said.

In one tape played at trial, Rajaratnam could be heard grilling Gupta about whether the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.

"Have you heard anything along that line?" Rajaratnam asked Gupta.

"Yeah," Gupta responded. "This was a big discussion at the board meeting."

Prosecutors sought to maximize the impact of the Gupta tape by calling Goldman Sachs chairman Lloyd Blankfein to testify that the phone call violated the investment bank's confidentiality policies.

Gupta's lawyer Gary P. Naftalis said Tuesday night that his client and Rajaratnam communicated for "legitimate reasons." He said his client didn't trade in any securities, didn't tip Rajaratnam so he could trade and didn't share in any profits.

"The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity," Naftalis said in an emailed statement.

Rajaratnam, who's in his mid-50s, was sentenced earlier this year to 11 years in prison. His lawyers had argued for 6 1/2 to nine years. Defense attorney Terence Lynam asked the judge to show compassion because of Rajaratnam's illnesses, saying: "He does not deserve to die in prison."

Former Goldman Sachs director Rajat Gupta will surrender to the FBI on Wednesday to face criminal charges, a person familiar with the investigation said.

Gupta was named as an unindicted co-conspirator in hedge fund founder Raj Rajaratnam's trial earlier this year. He has denied wrongdoing.

Rajaratnam was sentenced to 11-years in prison this month. Gupta's attorney, Gary Naftalis, did not immediately respond to a call seeking comment.

(Reporting by Basil Katz)

Copyright 2011 Thomson Reuters. Click for Restrictions.