Rajat Gupta Gets Two-Year Sentence for Insider Trading

By Patricia Hurtado, David Glovin and Bob Van Voris - Oct 25, 2012 7:36 AM GMT+0530Rajat Gupta, who rose to the pinnacle of Wall Street as a Goldman Sachs Group Inc. (GS)director and McKinsey & Co. managing director, was sentenced to two years in prison for passing inside tips to his business partner.Gupta, who ran McKinsey 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 by a jury in June of one count of conspiracy and three counts of securities fraud.

Rakoff ordered Gupta to report to prison on Jan. 8 and fined him $5 million, rejecting a bid to allow him to remain free pending appeal. The judge said he would recommend to U.S. Bureau of Prisons officials that Gupta serve his term at the federal prison in Otisville, New York.The evidence that Gupta passed illegal information about New York-based Goldman Sachs to Rajaratnam, his friend and business partner, “was not only overwhelming, it was disgusting in its implications,” Rakoff said in court. Gupta leaked information about a $5 billion investment in Goldman Sachs by Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) on Sept. 23, 2008, and a tip on a quarterly loss. Rakoff said today he was especially troubled by Gupta’s actions during this tumultuous period.

‘Possible Ruin’

“With Goldman Sachs in turmoil but on the verge of being rescued from possible ruin by an infusion of $5 billion, Gupta, within minutes of hearing of the transaction, tipped Rajaratnam, so that the latter could trade on this information in the last few minutes before the market closed,” the judge said just before he imposed sentence. “This was the functional equivalent of stabbing Goldman in the back.” Prosecutors had sought a prison term for Gupta of as long as 10 years in prison. Assistant U.S. Attorney Richard Tarlowe today argued that Gupta’s crimes warranted a substantial prison time because of his prominence in the business world and the egregiousness of his crimes. Tarlowe said a sentence of probation would give the impression that there is “a two-tier system of justice.” While Gupta didn’t personally profit, his tips allowed Rajaratnam to earn millions of dollars, Tarlowe said.“The crime is so serious because of the position that was held, and that is why the fall from grace is more steep,” Tarlowe said.

Clear Message

“It is very important that the message be clear to that community, to that target audience, that this is insider trading,” Tarlowe said. “If you are a senior executive, if you tip another professional, another prominent businessperson, a hedge fund manager, even if you do it using your regular phone from your executive suite, that is insider trading and that will be punished severely.”Gupta requested probation and community service. His lawyer, Gary Naftalis, had proposed that he work with needy children in New York or the poor in Rwanda. Citing Gupta’s good works and saying he’d suffered enough with his reputation destroyed, Naftalis argued today that his client should be granted leniency.“The fall from grace that Mr. Gupta has suffered or experienced as a result of this matter is as steep as I have ever seen anyone in any case that I have ever seen,” Naftalis said. “This was an iconic figure, someone who had been a role model for people around the globe for his work.”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.

‘Extraordinary’ Life

Gupta’s life “has been an extraordinary one,” Naftalis said today in court. The lawyer 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,” Naftalis said. “This is a man who has suffered punishment enough.” Rakoff said he agreed with the description of Gupta’s good works.“I think the record, which the government really doesn’t dispute, is that he’s a good man, but the history of this country and the history of the world are filled with good men who do bad things, so I don’t think that’s the end of the subject,” Rakoff said.......................................................http://www.bloomberg.com/news/2012-10-24/rajat-gupta-gets-two-year-sentence-for-insider-trading-1-.html