Friday, June 15, 2012/ 1732 / By Chad BRAY, Michael ROTHFELD and Reed ALBERGOTTI / WSJ
 

A federal jury convicted Rajat Gupta, once an executive and board member at the pinnacle of American business, of insider trading, capping the fall of the most prominent figure caught in the government's drive to stop the leaking of corporate secrets to Wall Street.
 

A former director at Goldman Sachs Group Inc. GS +0.18% and Procter & Gamble Co., PG -0.51% Mr. Gupta was convicted on three counts of securities fraud and one count of conspiracy for passing along confidential boardroom information about both companies to a hedge fund that earned millions of dollars trading on his tips. He was acquitted of two counts of securities fraud.
 

Mr. Gupta faces up to 20 years in prison on each of the fraud charges and up to five years for the conspiracy charge. But his sentence is likely to be significantly lower under federal guidelines. Sentencing is set for Oct. 18.
 

The case was a big victory for prosecutors. Much of the evidence against Mr. Gupta was circumstantial, including phone records that showed he promptly called Raj Rajaratnam after receiving confidential information. The billionaire founder of hedge fund Galleon Group then ordered his funds to trade on the inside information. Mr. Rajaratnam was convicted of insider trading last year and sentenced to more than 11 years in prison.
 

Mr. Gupta, who had wanted to testify in his own defense, ultimately took the advice of his lawyers and elected not to, believing his best chance at acquittal was to raise doubts about the government's case, according to a friend of Mr. Gupta's.
 

Prosecutions of insider trading based on circumstantial evidence once were common, but since 2009 federal authorities in New York have strengthened their hand by using wiretapped phone calls to obtain 61 convictions and guilty pleas out of 68 people charged.
 

Mr. Gupta's defense team, besides pointing out the lack of such direct evidence against him, sought to persuade jurors that he had a falling out over $10 million that he had lost in an investment with Mr. Rajaratnam, negating any motive he would have had to provide the tips.
 

Until now, Mr. Rajaratnam, who managed $7 billion in his hedge funds, had been the biggest name among those convicted in the investigation by Manhattan federal prosecutors and the Federal Bureau of Investigation after a nearly two-month trial last year.
 

Mr. Gupta, 63 years old, was elected three times as managing director of McKinsey & Co., a consulting firm for many Fortune 500 companies, retiring from the firm in 2007. After he was charged by the Securities and Exchange Commission in a civil administrative proceeding in March 2011, he resigned from the boards of P&G and AMR Corp., the parent of American Airlines. He already had left Goldman by then.
 

The four-week trial had as its backdrop the financial crisis that exploded in the fall of 2008, when Mr. Gupta was accused of giving Mr. Rajaratnam inside information on two issues crucial to Goldman's financial health: a $5 billion investment by Warren Buffett's Berkshire Hathaway Inc. BRKB +0.67% and the bank's first quarterly loss as a public company.
 

Prosecutors said Mr. Gupta, who invested with Mr. Rajaratnam at Galleon in various ventures, tipped him because of their friendship and business interests. Their relationship was so close, prosecutors said, that Mr. Gupta had open access with his own keycard to Galleon's Midtown Manhattan office.
 

The defense countered that there was no evidence Mr. Gupta profited, or traded on, any alleged tip, and that rather than tip Mr. Rajaratnam he had contemplated suing him over Voyager Capital Partners, their failed investment. The government said Mr. Gupta explored a lawsuit in 2009 after the tips had been given. The government never accused Mr. Gupta of personally trading on the inside information but said he benefited from his stake in Voyager, which invested in Galleon funds.
 

While Mr. Rajaratnam was caught on dozens of wiretaps discussing the information he had received and trades he made, the evidence against Mr. Gupta was more tenuous. Only one substantive conversation between the two men was caught on tape, on July 29, 2008, but Mr. Rajaratnam didn't trade on the information prosecutors alleged was shared: that Goldman had considered buying a commercial bank or insurance company as a source of capital.
 

Still, prosecutors were able to piece together a pattern of telephone and trading records, supported by the testimony of witnesses, including Goldman Sachs Chief Executive Lloyd Blankfein, to persuade the 12-member jury that Mr. Gupta had passed along inside information. Prosecutors accused Mr. Gupta of phoning Mr. Rajaratnam time and time again immediately after learning of big developments at the companies in which he served as a director.
 

At the apex of the financial crisis, prosecutors said, Mr. Gupta phoned Mr. Rajaratnam within a minute after disconnecting from the Sept. 23, 2008, Goldman board call in which the Buffett investment was approved. Galleon bought $43 million in Goldman stock in the final three minutes of the trading day, netting nearly $1 million on the trade.
 

In the first week of the trial, prosecutors offered jurors a view inside Galleon at that time, calling Mr. Rajaratnam's former secretary and a trader to testify about an urgent call the hedge-fund manager received late that afternoon, followed by a rush to buy hundreds of thousands of Goldman's shares. Using phone records, prosecutors tied the call to Mr. Gupta's Connecticut office.
 

Galleon obtained 217,200 shares before the market closed. A few hours later, Goldman announced the investment by Berkshire. A secondary stock offering raised an additional $5 billion.
 

Mr. Gupta was accused of leaking confidential Goldman financial information to Mr. Rajaratnam on four separate occasions from early 2007 until the Oct. 24, 2008, tip about Goldman's coming quarterly loss. He was acquitted of a fraud charge related to the alleged disclosure of Goldman's results in March 2007.
 

One of the most critical moments for Mr. Gupta came before the proceedings even began. Over the objections of Mr. Gupta's defense team, U.S. District Judge Jed Rakoff ruled that prosecutors could play three wiretaps for jurors.
 

Mr. Rajaratnam was heard on the calls bragging to colleagues on days after he received tips that he heard "something good" about Goldman or had received information from a Goldman director. In one of those calls, taped by the Federal Bureau of Investigation on Oct. 24, 2008, he told an employee: "I heard yesterday from somebody who's on the board of Goldman Sachs that they are gonna lose $2 per share. The Street has them making $2.50."
 

Write to Chad Bray at chad.bray@wsj.com  Michael Rothfeld at michael.rothfeld@wsj.com and Reed Albergotti at reed.albergotti@wsj.com