New York: Rajat Gupta, 63, who lived the American dream as the retired head of the consulting firm McKinsey & Co and as a director at Goldman Sachs, was convicted by a federal jury on Friday of leaking confidential information to Galleon hedge-fund manager Raj Rajaratnam.
It capped the fall of one of the most prominent India-educated executives to be caught in America’s drive to stop the leaking of corporate secrets to Wall Street.
Though Gary Naftalis, Gupta’s lawyer asked, “Where’s the beef?” referring to the government’s lack of evidence, prosecutor Reed Brosky managed to convince the 12-member jury of eight women and four men by presenting tons of circumstantial evidence. Gupta was convicted on Friday on four of six counts on charges of helping hedge fund manager Raj Rajaratnam make millions through secret stock tips.
“Having fallen from respected insider to convicted inside trader, Mr Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell,” said star Indian American lawyer Preet Bharara, the United States attorney in Manhattan.
“Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief,” added Bharara.
After the verdict was read, shock ripped through Gupta’s supporters while Gupta himself remained composed. Just behind Gupta, his wife, Anita, buried her head in her hands, while Gupta’s four daughters sobbed and consoled one another.
Gupta’s lawyers Naftalis said that his client would likely appeal the verdict.
“We believe the facts of this demonstrate that Mr Gupta is innocent and we continue to believe he is innocent of all the charges,” said Naftalis. “This is only round one of this matter.”
A former director at Goldman and Procter & Gamble, Gupta was convicted on three counts of securities fraud and one count of conspiracy for passing along confidential boardroom information about both companies to Galleon which traded on the tips. He was acquitted of two counts of securities fraud.
Gupta faces up to 20 years in prison on each of the fraud charges and up to five years for the conspiracy charge. But his sentence is likely to be significantly lower under federal guidelines, according to The Wall Street Journal. Judge Jed S Rakoff set sentencing for 18 October and said he was inclined to set Gupta free on bail until then.
The crux of the government’s case is that Gupta and Rajaratnam were close friends and that Gupta routinely shared “inside information” with his buddy. Rajaratnam was convicted last year of receiving insider information from various sources, some of whom were caught on FBI surveillance (tape) speaking directly with him about the confidential information. Rajaratnam was sentenced to 11 years in prison.
Gupta’s lawyers have pointed out that the FBI doesn’t actually have Gupta on a phone call where he is actually sharing any confidential information. What they do have is plenty of circumstantial evidence. In 2008, Gupta placed a call to Rajaratnam after a Goldman Sachs board meeting and minutes later Raj placed a large order for Goldman stock ahead of the announcement of Warren Buffett’s $5 billion investment in the investment bank. Granted, it looks dodgy, but we don’t know if Gupta actually spoke about Goldman or the weather on the short phone call.
Only one substantive conversation between the two men was caught on tape, on 29 July 2008, but Rajaratnam evidently didn’t trade on the information prosecutors alleged was shared: that Goldman had considered buying a commercial bank or insurance company as a source of capital.
Still, prosecutors pieced together a pattern of telephone and trading records, supported by the testimony of witnesses, including Goldman Sachs chief executive Lloyd Blankfein, to persuade the jury that Gupta had indeed passed along inside information.