A Goldman Sachs shareholder has sued the investment bank’s former director Rajat Gupta over profits that were accrued as a result of insider information that the Indian-American businessman passed on to his friend hedge fund founder Raj Rajaratnam.

The lawsuit, filed by James Mercer in Manhattan federal court, seeks to recover the “short-swing” profits that Mr Rajaratnam and Mr Gupta allegedly made through insider trading on Goldman shares.

“Gupta was beneficial owner of these securities because he had a pecuniary interest in the profits generated by this trading activity.

“Rajaratnam undoubtedly paid Gupta for the Goldman Sachs inside information on which these trades were made,” Mr Mercer says in the lawsuit.

Goldman’s board failed to take any action against Mr Gupta after receiving a notice 60 days ago, prompting the lawsuit. Through the lawsuit, Mr Mercer seeks that Mr Gupta be ordered to pay to Goldman Sachs the short-swing profits, which are those made within six months of a trade, from Galleon’s trading.

The investment bank is named as a nominal plaintiff in the case.

“This lawsuit is completely without merit, and we will vigorously defend against it,” Mr Gupta’s lawyer Mr Gary Naftalis said in a statement.

In March this year, the US Securities and Exchange Commission filed a civil administrative action against Mr Gupta, accusing the Harvard Business School graduate of illegally tipping Galleon Management founder Mr Rajaratnam with inside information about the quarterly earnings at both firms as well as an impending $five billion investment by Berkshire Hathaway in Goldman.

Mr Gupta in turn sued SEC for “unfairly and unconstitutionally” prosecuting him on insider trading charges. He objected to being tried before an SEC administrative judge instead of federal court where he can get a jury trial.

After an insider-trading trial, Mr Rajaratnam has been convicted on 14 counts of conspiracy and securities fraud last month.

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