Ex-Goldman Sachs director Rajat Gupta, pictured at the World Economic Forum on Jan. 28, 2010, in Davos, Switzerland (See correction below) .
NEW YORK (CNN) -- Former Goldman Sachs and Procter & Gamble director Rajat Gupta was indicted on insider trading charges Wednesday, U.S. prosecutors say.
According to the U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation, Gupta was charged with six counts of securities fraud and conspiracy to commit securities fraud.
Gupta surrendered Wednesday morning.
"Today's surrender is the latest step in an initiative launched by the FBI in 2007 targeting hedge fund insider trading," said FBI Assistant Director-in-Charge Janice Fedarcyk.
Gupta's attorney, Gary Naftalis, said that "the government's allegations are totally baseless."
"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," Naftalis said in a statement.
Gupta appeared in court Wednesday afternoon and pled not guilty to the charges against him.
Gupta is out on bail after using his Connecticut home as collateral to post the $10 million bond.
The Securities and Exchange Commission also charged Gupta with insider trading Wednesday and filed new insider trading charges against hedge fund founder Raj Rajaratnam after first charging him with insider trading in October 2009.
According to the SEC's complaint filed in federal court in Manhattan, Gupta illegally tipped Rajaratnam with insider information about the quarterly earnings of both Goldman Sachs and Procter & Gamble (Fortune 500), and leaked the $5 billion investment in Goldman at the height of the financial crisis by Warren Buffett's Berkshire Hathaway ( , Fortune 500).,
The complaint says that immediately after Gupta and other members of the board agreed to accept that investment, Gupta tipped off Rajaratnam. A few minutes later, prosecutors say Rajaratnam bought 217,200 shares of Goldman Sachs for approximately $27 million.
A day later -- and after Goldman Sachs publicly announced the investment by Berkshire Hathaway -- Rajaratnam sold those shares, generating an illegal profit of more than $800,000, according to the indictment.
If convicted, Gupta faces a maximum penalty of five years in prison on the conspiracy charge and a fine of $250,000 or twice the gain from the alleged crime. He also faces 20 years in prison on each of the securities fraud charges plus a maximum fine of $5 million for each count or twice the gain from the crime.
The investigation against Gupta, who led consulting firm McKinsey & Co., stems from the trial of Rajaratnam.
According to the indictment, Gupta relayed insider information to Rajaratnam with the understanding that Rajaratnam would use that information to purchase and sell securities.
"Rajat Gupta was entrusted by some of the premier institutions of American business to sit inside their boardrooms, among their executives and directors, and receive their confidential information so that he could give advice and counsel for the benefit of their shareholders," said U.S. Attorney Preet Bharara.
"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.
Rajaratnam, former manager of the defunct hedge fund Galleon Group, was sentenced this month to 11 years in federal prison -- a record for insider trading -- and fined $10 million. He was found guilty on May 11 of all 14 counts of conspiracy and fraud, after netting $64 million on a long-running insider trading scam.
Rajaratnam was accused of profiting on trades he made using non-public information.
During the trial, prosecutors played dozens of wiretapped phone calls, in which Rajaratnam discussed proprietary information on big companies, including Goldman Sachs (Fortune 500).,
The prosecution said the recordings showed Rajaratnam receiving information from Gupta that he used to make $17 million in illegal profits.
Rajaratnam managed $7 billion at Galleon before the hedge fund shut down following his indictment in 2009.
"There were legitimate reasons for any communications between Mr. Gupta and Mr. Rajaratnam -- not the least of which was Mr. Gupta's attempt to obtain information regarding his $10 million investment in the GB Voyager fund managed by Mr. Rajaratnam," said Naftalis, Gupta's attorney. "In fact, Mr. Gupta lost his entire investment in the fund at the time of the events in question, negating any motive to deviate from a lifetime of probity and distinguished service."
Correction: An earlier version of the story contained a caption misidentifying Gupta's job.
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