Rajat Gupta, one of America’s best-connected businessmen, has been arrested by US federal authorities over the insider trading probe that saw former hedge fund tycoon Raj Rajaratnam jailed for 11 years this month.
Gupta, a former head of McKinsey and ex-director of Goldman Sachs, has been charged with the criminal offences of securities fraud and conspiracy for being the "illegal eyes and ears" of his friend Rajaratnam.
Prosecutors allege that he leaked vital inside secrets from Goldman and Procter & Gamble to Rajaratnam in 2008 and 2009.
One of Wall Street’s best-known faces, Gupta is the most prominent executive to face charges since Rajaratnam was arrested in October 2009.
Rajaratnam, founder of the Galleon Group hedge fund, was sentenced to 11 years in prison this month after an overwhelming insider-trading conviction.
The sweeping Galleon case caught many of his associates on secretly recorded phone calls, and many of them have also been prosecuted in the case.
Gupta's lawyer, Gary Naftalis, said in a statement that there were legitimate reasons for communications between his client and Rajaratnam, including a $10m (£6.3m) investment that Gupta had in a fund managed by the Galleon founder. Gupta lost the entire amount, Naftalis said.
"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," Naftalis said.
He said Gupta did not trade in any stocks and did not tip Rajaratnam so he could trade.
Manhattan US Attorney Preet Bharara said in a statement that Gupta had been entrusted by top companies.
"As alleged, he broke that trust and instead 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," Bharara said.
Gupta surrendered to FBI agents and will appear in federal court in New York later on Wednesday. He also faces civil charges brought by the US Securities and Exchange Commission. The SEC said Rajaratnam's funds made more than $23m on Gupta's information.
The criminal charges carry a maximum prison sentence of 25 years.