Rajat Gupta not liable to Goldman for Rajaratnam tips: US court

A US appeals court has dismissed a lawsuit brought against former Goldman Sachs director Rajat Gupta by a shareholder of the firm who sought that the Indian-American repay profits made after hedge fund founder Raj Rajaratnam traded in shares based on insider tips passed by him.

The lawsuit brought by Goldman investor James Mercer was dismissed by the Second Circuit Court of Appeals here which said that Mercer had failed to prove that Gupta was a "beneficial owner" of Goldman Sachs shares.

"Plaintiff has failed to allege that Defendant Gupta had 'pecuniary interest' in Goldman Sachs shares that would make him a 'beneficial owner' of the shares," the three judge panel ruled.

The India-born former McKinsey head had been sentenced to two years in prison last year for passing insider tips about Goldman Sachs to now jailed Galleon founder Rajaratnman.

Gupta is fighting his conviction on the insider trading charges.

Rajaratnam is currently serving an 11-year prison term after being convicted of running one of the largest insider trading schemes in US history.

In his suit, Mercer had said Gupta repeatedly shared information about Goldman's share price with Rajaratnam whose hedge fund then engaged in "short-swing trading" of Goldman shares, earning profits or avoiding losses.

Gupta had an interest in sharing information with Rajaratnam as he was a director of and had a balance of over 16 million dollars in the Voyager fund that invested in other Galleon hedge funds.