New York: Former Goldman Sachs director Rajat Gupta, 63, was sentenced to two years in prison on Wednesday by a Manhattan federal court for insider trading. He will also have to pay a $5 million fine.
The verdict was a semi-victory for Gupta and legions of his supporters who had fought hard and long to get him a lenient sentence. Prosecutors had been seeking 10 years in prison for Gupta passing on illegal tips, while his own lawyers argued he should get probation and community service because he didn’t actually profit from the crimes.
As anticipated, Judge Jed S. Rakoff handed down a rather more lenient prison sentence to Gupta than the 8 to 10 years stipulated by federal sentencing guidelines.
Gupta’s sentence is in line with more moderate prison terms handed down by Judge Rakoff in other recent insider trading cases. The judge summarised how most people view Gupta who rose swiftly through the ranks of corporate America and gave back generously to the world.
'A good man'
"I think the record, which the government really doesn't dispute, bears out that he is a good man," said Judge Rakoff during the hearing.
"But the history of this country and the history of the world, I'm afraid, is full of examples of good men who do bad things," added the judge.
Gupta is scheduled to report to prison on 8 January 2013. He was also ordered to pay a $5 million fine. He would face one year of supervised release after finishing his prison term.
Gupta, who was convicted in June of three counts of securities fraud relating to tips about Goldman and one count of conspiracy, didn't trade or profit from passing secrets he learned, while serving on the board of directors of Goldman Sachs, to Raj Rajaratnam, the founder of hedge fund Galleon.
One of the allegations made against Gupta is that following a Goldman board meeting on 23 September 2008, he informed Rajaratnam that billionaire investor Warren Buffett was going to make a $5 billion investment in Goldman.
Appealing the sentence
Gupta’s lawyers plan an appeal, but are aware that things could have panned out worse. After all, the courts sent a shock message to Wall Street in May last year by sentencing hedge fund billionaire Raj Rajaratnam to 11 years in prison, one of the longest prison terms in history for insider trading.
Gupta was accompanied to court by his wife and four daughters. He moved the court by apologising to his friends, family and the institutions that he helped to found.
"The last 18 months have been the most challenging period of my life since I lost my parents as a teenager," Gupta told the judge before sentencing.
"I regret terribly the impact of this matter on my family, my friends and the institutions that are dear to me. I've lost my reputation I built for a lifetime. The verdict was devastating," said Gupta.
"Much of the first year seemed surreal to me. However, since the trial I've come to accept the reality of my life going forward," said Gupta with quiet dignity.
Preet Bharara’s crown jewel
Gupta is a big prize for Bharara in fighting white-collar crime as the standard defendants in insider trading cases are low-level traders and analysts on Wall Street. There is no doubt that US Attorney Preet Bharara really gunned for Gupta, and he pressed for a harsh sentence to send a tough message to discourage others from insider trading.
Gupta, who owns a $9 million waterfront home in Westport, Connecticut, is the most prominent of 70 people convicted since an insider-trading crackdown by US prosecutors began four years ago.
“His conduct has forever tarnished a once-sterling reputation that took years to cultivate,” Bharara said after the sentencing. “We hope that others who might consider breaking the securities laws will take heed from this sad occasion and choose not to follow in Mr. Gupta’s footsteps,” the prosecutor added.
Bharara, 42, who lives a quiet suburban life with his wife and three children, always wanted to be a trial lawyer. He played a key role in the largest mob round-up in recent FBI history by using wiretaps against the Gambino and Colombo crime families. In 2009, he was nominated as US attorney for the Southern District of New York.
The Galleon case is the crown jewel of his work to date. To collect those scalps, Bharara has, some say, played rough by using wiretaps and strong-arm tactics he first employed against the mob.
On Thursday, lawyers for Rajaratnam, the founder of Galleon, will ask the US Second Circuit Court of Appeals to set aside his conviction on insider-trading charges last year, in part arguing that the government shouldn’t have been allowed to play a series of wiretap recordings at his trial.
Gupta gets prison instead of Rwanda
The Rajat Gupta defence team was hoping that Gupta’s conviction for insider trading would not lead to years in prison, but merely a loss of reputation and months of community service in Africa.
However, the judge rejected the recommendation from Gupta’s lawyers for a sentence of probation combined with a “rigorous and lengthy program of community service” that included a proposal to work in Rwanda. The Rwandan government had sent a letter saying it wanted Gupta to work on a program for rural districts to battle HIV and malaria.
The attorneys also argued in a pre-sentencing brief that prison would spoil the efforts by Gupta, to develop new initiatives, including the Urban Institute of India, meant to bring the private sector, academia and the Indian government together to address accelerating migration to India’s cities.
What is sad about Gupta’s Icarus-like fall is that the man obviously loves India and has worked hard after retiring from McKinsey to give back to the community. He got corporate executives of major companies to donate millions to start the Indian School of Business (ISB) in Hyderabad. Gupta resigned as chairman of the board of directors at ISB in March last year to save the school embarrassment. ISB has stayed loyal to him saying the resignation was unnecessary because he is blameless.
Gupta also worked with former President Bill Clinton in leadership roles at the American India Foundation as the chairman of the Global Fund for AIDS. The conviction and the sentencing are a stunning reversal of fortunes for soft-spoken Gupta who grew up in Kolkata and studied at the Indian Institute of Technology, in Delhi.
He moved to the US in 1971 to study in Harvard Business School. Two years later, he joined the largely white, clubby McKinsey & Company. In 1994, at the age of 45, Gupta became the first non-Westerner to lead the blue blooded consultancy firm.