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Gupta Resigns From Indian School of Biz

Rajat Gupta is an top adviser to many business schools

Former McKinsey & Co. Managing Director Rajat Gupta resigned today (March 21) as the chairman of the Indian School of Business (ISB), exactly 20 days after being accused of insider trading by the Securities & Exchange Commission.

The highly regarded school was co-founded by Gupta, who as a director of Goldman Sachs and Procter & Gamble allegedly leaked boardroom details from both companies to a friend who racked up $18 million of illegal gains by trading on the information. Gupta has denied any wrongdoing.

“Rajat Gupta has requested the ISB executive board to relieve him of his board responsibilities till his pending matter with the US Securities and Exchange Commission is resolved,” said a statement issued by the school.

Unfortunately, the widening scandal in the U.S. also claimed another ISB board member, Anil Kumar, who had already resigned from the school’s board. Only last week, as the trial of billionaire hedge fund manager Raj Rajaratnam opened, Kumar testified that eight years ago he agreed to accept half a million dollars annually from Rajaratnam to dish inside information on public companies. Kumar had been a consultant at McKinsey & Co., where Gupta had become the first non-Westerner to rise as managing director.

According to the SEC complaint, Gupta leaked details about Warren Buffett’s $5 bilion investment in Goldman Sachs to Rajaratnam, founder of the Galleon Group and a long-time friend and business associate. Gupta, who the SEC said invested in at least some Galleon hedge funds, also is accused of illegally tipping off his friend about quarterly earnings at Goldman and P&G. An odd footnote to the story: It was a business school connection that brought the two together. Gupta and Rajaratnam, who is from Sri Lanka, met through the Indian School of Business. Rajaratnam has been a major donor to ISB.

The federal investigation that has led to this trial has not only become a public embarrassment to ISB—but also to other highly prominent business schools whose graduates have either been accused of wrongdoing or who have already plead guilty to insider trading. Already ensnared in the mess are two Wharton MBAs, Rajaratnam and Kumar, who were Wharton classmates in the early 1980s, and Harvard Business School, where Gupta earned his MBA.

The ISB said it was searching for a new chairperson and would hold a meeting in early April 2 to name a successor. According to local reports in India, Anil Ambani, Adi Godrej and ICICI Bank CEO Chanda Kochar are being mentioned as Gupta’s possible successors.

In January 2009, M. Ram Mohan Rao stepped down as the dean of the business school following disclosures of his alleged involvement in a financial fraud at Satyam Computer Services.