On a sunny afternoon in June 2003, Rajat Gupta was greeted at his waterfront home in Westport, Conn., by scores of his McKinsey & Co. partners. They had come from London, Frankfurt, New Delhi and other cities around the world — and brought along an elephant, which they tethered on the front lawn.

Gupta was stepping down after nine years as managing director of the global consulting firm, and his colleagues were gathered to celebrate his tenure and wish him the best.

They offered champagne toasts and took photos of Gupta standing next to the elephant, which was draped in a brightly colored shawl called a jhool — representing the Hindu god Ganesh, who bestows good fortune on new ventures.

Today, some of those same people say they’re stunned by what they have since learned about Gupta. In March, the SEC filed an administrative order against him saying that he had passed confidential information to hedge fund billionaire Raj Rajaratnam, the central figure in the biggest crackdown on insider trading in U.S. history.

Rajaratnam was convicted on 14 counts of conspiracy and securities fraud and could face 19 years in prison, pending his sentencing in federal court.

Government wiretaps and phone records show that Gupta called Rajaratnam nine times in 2008 and 2009, giving the hedge fund manager information to make trades for his Galleon Group.

Gupta, 62, who divides his time between Connecticut, Manhattan and Florida, has lived a double life. For 34 years until 2007, he worked for McKinsey, one of the world’s most trusted and prestigious consulting firms.

As a philanthropist, Gupta raised millions of dollars for education and health care, especially in India, where he was born and to which he wanted to give back. He has done charitable work with Microsoft co-founder Bill Gates and Bill Clinton. Friends describe him as brilliant and humble.

Keeping secrets

At McKinsey, a firm known for keeping secrets, Gupta harbored a few of his own. As the managing director and then as senior partner of McKinsey for four more years before he retired, he ran his own consulting business on the side — a violation of McKinsey rules.

He and Anil Kumar, a former McKinsey partner who last year pleaded guilty to passing confidential information to Rajaratnam, set up their own firm. Gupta also independently advised Genpact, a Gurgaon, India-based firm that manages business processes for other companies. That work, too, broke McKinsey’s rules.

“It has always been a clear violation of our values and professional standards for any firm member to provide consulting or advisory services outside of McKinsey for personal monetary gain,” says Michael Stewart, a McKinsey partner and director of communications.

McKinsey conducted an investigation of Gupta and Kumar and has cooperated with prosecutors and the SEC.

During the past decade, Gupta, who was already a millionaire, began to spend more time with Wall Street money managers. He told colleagues that he wanted to be a dealmaker, not just a consultant. Gupta declined to comment for this story.

Gupta’s quest to amass great wealth led him to lapses in judgment, says Bala Balachandran, dean of the Great Lakes Institute of Management in Chennai, and a friend for almost three decades.

“He wanted a billionaire’s life, and the question for him was how could he become a billionaire in a short time,” Balachandran says.

In December 2006, two years before he reached McKinsey’s mandatory retirement age of 60, Gupta co-founded private-equity firm New Silk Route Partners with investors, three of whom had paid fines to settle SEC actions against them.

Among the three was Rajaratnam, whose Galleon Group paid $2 million in a fine and forfeited profits to the government in May 2005 to settle an SEC complaint that it had made improper trades.

Parag Saxena, a money manager, paid a $250,000 fine in 1994 to settle civil claims that he had received pre-initial-public-offering stock in companies at discounts and then recommended the shares to his clients at Chancellor Capital Management, after the companies went public.

In 2006, Victor Menezes, a former Citigroup executive, paid $2.7 million in a fine and forfeited trading profits to settle SEC charges that he sold Citigroup holdings ahead of an announcement of losses from a subsidiary in Argentina.

Balachandran says he warned Gupta of his choice of business partners.

“You’re an eagle, so why do you want to be with these chickens who can’t fly?” Balachandran says he told Gupta. “You’ll get the chicken flu.”

Gupta hasn’t been charged with a crime in the Galleon insider-trading scandal. The SEC action against him is a civil complaint, which could bring a fine and a consent decree that could bar him from serving on public company boards.

Gupta and Rajaratnam have known each other since the 1990s. Gupta invested $10 million of his own money with Rajaratnam, according to Gupta’s lawyer, Gary Naftalis. Gupta gave Rajaratnam more than money; according to prosecutors at Rajaratnam’s trial, he passed along information on Goldman and P&G.

Justice Department prosecutors called Gupta an unindicted co-conspirator. They presented wiretap evidence to the Rajaratnam jury showing that Gupta had told the hedge fund manager that in 2008 Goldman Sachs’s board was discussing possible acquisitions of American International Group or Wachovia.

Gupta also gave Rajaratnam early word on earnings at Goldman Sachs and P&G, the SEC says in its action.

Gupta sent an e-mail in late February to fellow directors of the Indian School of Business, declaring his innocence.

“I have done nothing wrong,” he wrote to the board of the school, which he co-founded in 2001 in Hyderabad. “The SEC’s allegations are totally baseless.”

The Kumar conviction and the SEC action against Gupta have been a blow to McKinsey’s elite image.

Old boys’ club

Until the 1970s, the firm was the ultimate old boys’ club, where consultants were required to wear hats and long, dark-colored socks, with white, button-down cotton shirts and conservative suits. Gupta was the first nonwhite elected managing director of the firm.

McKinsey veterans have been deeply troubled by Gupta’s run-in with the SEC.

“I was shocked, totally and completely shocked, at the news of the allegations,” says Ian Davis, who succeeded Gupta as McKinsey’s managing director and is now a director of BP and Johnson & Johnson.

Gupta got caught up in envy and emulation of the super-rich, says Terry Connelly, dean of the Ageno School of Business at Golden Gate University.

“You can never underestimate the seductive power of three or more zeroes added to net-worth numbers,” says Connelly, a former managing director at Salomon Brothers. “You can be successful, but if you’re in hedge fund managers’ circles and you’re not rich like them, you can start asking, ‘Why can’t I get that? I’m every bit as smart.’ ”

Smart is a word people often use when describing Gupta. His ascent from modest roots in Kolkata to the top of McKinsey is a triumph of brainpower and drive.

He was born in 1948, 14 months after India’s independence from British rule. His father, a journalist who fought for India’s independence, was jailed several times for his political activism. His mother was a teacher in a Montessori school.

Gupta was orphaned at 18 after both his parents died of natural causes within two years of each other. He said he was shattered by his father’s death and became very studious.

He earned a bachelor’s degree in mechanical engineering from the elite Indian Institute of Technology. There, he met his future wife, Anita Mattoo, an electrical engineering student.

He was admitted to Harvard Business School on scholarship. The academic workload was unrelenting for most but not for Gupta, says John Carberry, who lived in the same Boston dormitory and was Gupta’s friend.

“Sometimes we’d still be doing cases at 2 a.m., but he’d be done by 11 p.m. and lying on his bed, watching Johnny Carson,” says Carberry, president of F.L. Putnam Investment Management.

With his MBA, he applied for a spot with McKinsey. Once hired, Gupta advanced steadily, becoming a McKinsey partner in 1980.

James Kilts, says he was impressed when he met Gupta in Chicago in the late 1980s. Kilts was then an executive at Kraft Foods, and Gupta advised him about strategy for cheese products.

“He was very thoughtful and self-deprecating,” Kilts says. “He could take a complicated subject and simplify it.”

Gupta’s career leap came in 1994, when McKinsey held elections for a new leader, something that happens every three years. Gupta, at 45, became McKinsey’s youngest managing director.

McKinsey grew rapidly under his leadership. He won reelection twice, and during his terms, revenue increased to $3.4 billion from $1.2 billion. McKinsey opened 26 offices in 30 countries under Gupta, who pursued global expansion in India, China and other emerging markets where the firm’s biggest clients increasingly were doing business.

Breaking with tradition

Gupta pushed McKinsey to take on Internet startups as clients, even when they could pay only in stock. That broke from the firm’s tradition of serving blue-chip clients who paid fees. The equity, which McKinsey accepted from about 150 firms, went into a profit pool for partners.

Client demand for McKinsey services declined after the Internet bubble burst in 2000. Global Crossing, Kmart, Swiss International Air Lines and other companies that McKinsey had advised filed for bankruptcy. The biggest public embarrassment was Enron’s collapse.

Enron had McKinsey in its bloodlines. Jeffrey Skilling, the firm’s CEO, had once been a McKinsey partner, and the consulting firm had advised the company for 18 years as it transformed itself from an oil pipeline operator to a derivatives trader. Skilling was convicted of fraud in 2006 and sentenced to 24 years in prison.

As McKinsey’s woes swelled, so did Gupta’s outside interests. He raised donations from India’s top business executives, including Infosys Technologies Chairman N.R. Narayana Murthy, to start the Indian School of Business.

When an earthquake struck the Indian state of Gujarat in 2001, Gupta co-founded the American India Foundation to raise funds for victims. The foundation has raised millions of dollars from Hollywood stars, executives and money managers to aid India’s poor. Rajaratnam and his wife donated $1.5 million to the foundation for an HIV/AIDS program.

Gupta’s McKinsey partners supported his philanthropy. They didn’t, however, know about the for-profit work he did while still at the firm, Stewart said.

In 2001, Gupta and Kumar set up their own consulting company, Mindspirit, in the names of their wives, Anita Gupta and Malvika Kumar, according to a filing with the SEC. The two men, working for Mindspirit, gave advice to InfoGroup’s CEO Vinod Gupta, according to the SEC filing. The database company compensated Mindspirit with 200,000 stock options. The consulting company exercised them for an undisclosed amount.

The same filing disclosed the settlement of a shareholder suit against Vinod Gupta for his use of company funds for personal pleasures. He had 28 club memberships, 20 cars, a yacht with an all-female crew and a private jet.

Vinod Gupta — no relation to Rajat Gupta — had collaborated with him in building the American India Foundation. He resigned as CEO and repaid InfoGroup $9 million, according to the filing.

Another company that Gupta advised was Genpact, which had been spun off from General Electric. Gupta was an advisory director from 2005 to 2007, for which he was granted 81,405 stock options, valued at 93 cents each then, according to Genpact’s 2008 proxy statement. He hasn’t exercised the options which expire in 2015, according to company filings. Genpact shares traded at $16.88 on May 16.

Calls to Rajaratnam

After retiring from McKinsey, Gupta went to India to look for investments for New Silk Route and to cities throughout the United States and overseas for meetings at public companies and nonprofit boards on which he was a director.

In New York, Gupta spent time with Rajaratnam. Gupta joined him and a third partner to form GB Voyager Multi-Strategy Fund, an investment fund, contributing $10 million of his own money. The $50 million fund invested in Galleon hedge funds, including those that traded on Gupta’s allegedly illegal tips, the SEC says.

Gupta passed confidential information to Rajaratnam in 2008 and 2009, the SEC says. He disclosed information on two calls to Rajaratnam in September 2008 about the $5 billion investment in Goldman Sachs from Warren Buffett’s Berkshire Hathaway, the regulator says.

Galleon Technology funds, which held no Goldman Sachs investments before those calls, bought 120,000 Goldman Sachs shares after Gupta talked to Rajaratnam, the SEC says. On a telephone conference call at 3:15 p.m. on Sept. 23, the Goldman Board approved Berkshire’s $5 billion investment.

“Gupta participated in the board meeting telephonically, staying connected to the call until approximately 3:53 p.m.,” the SEC wrote. “Immediately after disconnecting from the board call, Gupta called Rajaratnam from the same line.

“Within a minute after this telephone conversation, at 3:56 p.m. and 3:57 p.m., and just minutes before the close of the markets, Rajaratnam caused the Galleon Tech funds to purchase more than 175,000 additional Goldman shares,” the SEC wrote.

Galleon made more than $900,000 on the Goldman stock bought in advance of the announcement of Berkshire’s stake, according to the SEC.

A month later, Gupta called Rajaratnam 23 seconds after a Goldman Sachs board call during which senior executives informed directors of poor results by the bank, the SEC says.

Gupta also knew that Kumar, who was still employed at McKinsey, was being paid by Rajaratnam from offshore accounts, according to phone calls tape-recorded by federal investigators.

“You know, Rajat, I’m paying him a million a year for doing literally nothing,” Rajaratnam told Gupta in a 2008 call.

“I think you’re being very generous,” Gupta replied. “He should sometimes thank you for that, you know?”

Kumar, in pleading guilty, said Rajaratnam paid him $1.75 million to $2 million.

Gupta wanted a 10 percent stake in the Galleon International Fund, one of Rajaratnam’s hedge funds, in exchange for attracting investors. In a 2008 wiretapped call, Rajaratnam told Kumar that he was ready to offer this to Gupta.

“He’s not giving me the luxury of saying, ‘Why don’t you come up with a package?’” Rajaratnam said. “He’s telling me, ‘I want so much.’ ”

Gupta never got that stake, according to testimony at Rajaratnam’s trial. The $10 million he invested in the Voyager fund with Rajaratnam was wiped out in the 2008 global financial meltdown.

SEC action

Rajaratnam was arrested in 2009. Gupta left Goldman Sachs’s board in 2010, remaining a director at AMR, Genpact, Harmon International Industries, P&G and Sberbank of Russia.

In January 2011, the SEC notified Gupta that it had tied him to Rajaratnam and would file action against Gupta.

Gupta had already informed fellow directors at the Indian School of Business that an SEC action was imminent.

“Just to be clear: There are no tapes or any other direct evidence of me tipping Mr. Rajaratnam,” he wrote in the e-mail he sent directors. “I have spent my entire professional career zealously guarding the confidences of my clients. There is no reason for me to suddenly deviate from a lifetime of probity and honor.”

Gupta’s civil case is scheduled to be heard by an SEC administrative judge in July. He has filed a suit to get the SEC civil case transferred to a federal court, where it would be heard by a jury.

Gupta’s Harvard dormmate says he’s dumbfounded about the turn of events.

“If the SEC charges are true, something happened to Rajat,” he says. “The Rajat I knew at business school was of the highest integrity. The Rajat I’ve heard on wiretapped conversations isn’t the person I knew.”

A full version of this article appears in the July edition of Bloomberg Markets magazine.