Rajat Gupta Gets Two-Year Sentence for Insider Trading

Bloomberg on October 24, 2012 released the following:

“By Patricia Hurtado, David Glovin and Bob Van Voris

Former Goldman Sachs Group Inc. (GS) director Rajat Gupta was sentenced to two years in prison for insider trading, marking the downfall of a man who rose to the top of corporate America after being orphaned as an 18-year-old in Kolkata.

Gupta, who ran McKinsey & Co. from 1994 to 2003, was sentenced today by U.S. District Judge Jed Rakoff in Manhattan for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. Gupta, 63, was convicted in June of securities fraud and conspiracy. He is set to report to prison on Jan. 8. He was also fined $5 million.

The evidence that Gupta passed illegal information about Goldman Sachs to Rajaratnam was “not only overwhelming, it was disgusting in its implications,” Rakoff said in court today before handing down the sentence.

Prosecutors had sought a prison term for Gupta of as long as 10 years. Gupta requested probation and community service, and his lawyer had proposed that he work with needy children in New York or the poor in Rwanda.

In his 17 years as a judge, Rakoff has sentenced at least nine defendants other than Gupta for insider trading, including seven who pleaded guilty and two whom he jailed after they were found guilty by juries. Rakoff has a track record of imposing sentences that are half what the government recommends.

Insider Probes

From Jan. 1, 2011 to July of this year, federal judges in Manhattan sent the average insider-trading violator to prison for more than 22 months, according to an analysis of sentencing data by Bloomberg News. That was a 20 percent increase from the average term of 18.4 months during the previous eight years.

Over the same 18-month period, the average sentence after trial was 58 months, compared with 22 months during the same time for 18 defendants who pleaded guilty. Of the dozen defendants who pleaded guilty and agreed to cooperate with the U.S. insider-trading probe during that time, 11 avoided prison altogether. One got six months.

“With today’s sentence, Rajat Gupta now must face the grave consequences of his crime — a term of imprisonment,” Manhattan U.S. Attorney Preet Bharara said in a statement. “His conduct has forever tarnished a once-sterling reputation that took years to cultivate.”

‘Innovative’ Proposal’

During today’s hearing, Rakoff said the Rwanda community service proposal was “very innovative.”

“I thought, ah, this was the Peace Corps for insider traders,” the judge said to Gupta’s lawyer, Gary Naftalis. “But I think if everything you told me about Mr. Gupta’s character is correct, and I think it is, he would be doing this regardless of a court order or not. So looking at it in a cynical kind of way, it is not punishment.”

Before he was sentenced, Gupta told the judge that “I lost my reputation that I built over a lifetime. The last 18 months have been the most challenging period of my life since my parents died when I was a teenager.”

Gupta served on the boards of Procter & Gamble Co. (PG) and AMR Corp. (AAMRQ) and won praise for his charity from Microsoft Corp. (MSFT) Chairman Bill Gates and former United Nations Secretary-General Kofi Annan. As McKinsey’s youngest managing director, he almost tripled the firm’s revenue.

Helped ‘Many’

Gupta’s life “has been an extraordinary one,” Naftalis said today in court. He said his client has made “extraordinary contributions that have tangibly helped many, many people on this planet.” His crimes are a “total aberration in an otherwise laudatory life.”

Gupta was convicted by a jury of leaking tips to Rajaratnam, his friend and business partner, about New York- based Goldman Sachs. Gupta leaked information including a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) on Sept. 23, 2008, and a tip on a quarterly loss.

The jury acquitted Gupta of charges that he leaked information that Cincinnati-based P&G’s organic sales growth would fall below estimates and that he tipped Rajaratnam, 55, about Goldman Sachs’s earnings in the first quarter of 2007.

Unlike the Rajaratnam prosecution, which was based on dozens of wiretaps of his mobile-phone conversations, the case against Gupta was circumstantial and built on trading records, business relationships and comments by Rajaratnam or others about Galleon’s sources of information. The jury heard one wiretapped conversation between Gupta and Rajaratnam. Naftalis told the judge today that he would challenge Rakoff’s decision to admit the recording and other evidentiary rulings he made during the trial on appeal.

The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).”


Douglas McNabb – McNabb Associates, P.C.’s
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