Rajat Gupta gets 2 yrs in jail for fraud

Written by Agencies | New York | Updated: Oct 25 2012, 17:24pm hrs
Rajat GuptaRajat Gupta has been sentenced to two years in prison and ordered to pay a $ 5 million fine. (AP)
Fallen Wall Street tycoon Rajat Gupta was today sentenced to two years in prison and ordered to pay a USD five million fine by a US judge who termed Indian-American's insider trading fraud as "disgusting" and a "terrible breach of trust".

Gupta, 63 was also ordered by US District Judge Jed Rakoff to serve a year of supervised release after the end of his prison term.

The IIT and Harvard-educated former Goldman Sachs director would have to surrender to a designated prison on January 8, 2013. Rakoff denied Gupta's request to remain free on bail while he appeals his case.

A court could have taken about two years or more to rule on Gupta's appeal.

While the judge agreed to a request from Gupta's lawyers that he be assigned to New York's medium-security prison in Otisville, the final decision rests with the Federal Bureau of Prisons.

Dressed in a dark blue suit, Gupta looked tensed and appeared to hold back tears as his sentencing proceedings began in Manhattan federal court here yesterday. He sat expressionless as Rakoff read the 15-page sentence at the end of the hearing which lasted over two and a half hours.

Gupta's sentencing comes exactly a year after he was charged with securities and conspiracy fraud, for which he had faced a maximum sentence of 25 years and marks a stunning fall from grace for the Indian-American who rose through the ranks to become one of the most prominent titans on Wall Street.

Rakoff, who on multiple occasions gave Gupta credit for his life of philanthropic works, said at the heart of Gupta's offenses is his "egregious breach of trust."

"He is a good man," Rakoff said.

"But the history of this country and the history of the world is full of examples of good men who did bad things."

Rakoff said the evidence that Gupta passed illegal information about Goldman Sachs to now-jailed hedge fund founder Raj Rajaratnam was "not only overwhelming, it was disgusting in its implications... It was a terrible breach of trust."

Rakoff said the urgency and manner in which Gupta shared information about Warren Buffet's five billion dollar investment in Goldman Sachs with Rajaratnam "was the functional equivalent of stabbing Goldman in the back."

"In the eye of the law, Gupta's crime was to breach his fiduciary duty of confidentiality to Goldman Sachs; or to put it another way, Goldman Sachs, not the marketplace, was the victim of Gupta's crimes as charged," the judge said.

Rakoff said he does not dispute Gupta's innumerable charitable works and his intentions to help out others selflessly but his personal history and characteristics "starkly contrast" with the nature and circumstances of his crimes.

Before Rakoff gave his judgement, Gupta made his first comments in court, reading from a prepared statement and expressing regret over letting his family and colleagues down.

Gupta's wife and four daughters sat right behind him in the spectators' gallery, holding each others' hands and often consoling each other as they wept through the hearing. Several of Gupta's close friends and other members of family were also present in the packed courtroom.

"The last 18 months have been the most challenging period of my life since I lost my parents as a teenager. I have lost my reputation that I have built over a lifetime. The verdict was devastating to my family, my friends and me," Gupta said.

At the end of the court's proceedings, Gupta smiled as he shook hands and hugged his team of defence lawyers.

Surrounded by his family, he said he had no comment on the sentence as he walked out of the courtroom.

Gupta's two year sentence is a lot less than the 8-10 years that the prosecutors had sought for him. It is also less than Rajaratnam's prison term of 11 years and the USD 92.8 million fine the Sri Lankan had been ordered to pay.

Judge Rakoff is known to deviate from federal sentencing guidelines in handing down punishment.

He said the tips that Gupta passed on to Rajartanam in September and October 2008 on Buffet's five billion investment in Goldman Sachs and the global financial giant's quarterly losses resulted in an illegal "gain" of over five million dollars to Rajaratnam's hedge fund galleon.

"In the court's view, the evidence at trial established, to a virtual certainty, that Gupta, well knowing his fiduciary responsibilities to Goldman Sachs, brazenly disclosed material non-public information to Rajaratnam at the very time when our financial institutions were in immense distress and most in need of stability, repose, and trust."

Rakoff said, "All the evidence before the court - not just the letters written on Gupta's behalf but also the objective facts of record - establish beyond cavil that Gupta has selflessly devoted a huge amount of time and effort to a very wide variety of socially beneficial activities.

"Such activities are but illustrations of Gupta's big heart and helping hand, which he extended without fanfare or self-promotion, to all with whom he came in contact," Rakoff said.

He said the court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, "not only to humanity writ large, but also to individual human beings in their times of need."

The judge said he does not agree with a general perception that the nearly 400 letters of support, including from Microsoft co-founder Bill Gates and former UN Chief Kofi Annan, for former McKinsey head "are simply the strategem of a rich, well-connected defendant."

"This is simply not the case, for the facts recited in most of the letters are well documented and, indeed, undisputed by the government."

Rakoff said one can only speculate as to why Gupta, who once sat on the boards of Procter & Gamble and American Airlines and was an advisor to the UN as well as the Bill and Melinda Gates Foundation, ended up committing the crime of insider trading.

"Having finished his spectacular career at McKinsey in 2007, Gupta, for all his charitable endeavours, may have felt frustrated in not finding new business worlds to conquer; and Rajaratnam, a clever cultivator of persons with information, repeatedly held out prospects of exciting new international business opportunities that Rajaratnam would help fund but that Gupta would lead.

"There is also... an implicit suggestion that, after so many years of assuming the role of father to all, Gupta may have longed to escape the straightjacket of overwhelming responsibility, and had begun to loosen his self-restraint in ways that clouded his judgement," Rakoff said.

"But whatever was operating in the recesses of his brain, there is no doubt that Gupta, though not immediately profiting from tipping Rajaratnam, viewed it as an avenue to future benefits, opportunities, and even excitement. Thus, by any measure, Gupta's criminal acts represented the very antithesis of the values he had previously embodied."

Gupta's lawyer Gary Naftalis told the court that his client should be spared jail time as his loss of reputation due to the insider trading case was punishment enough.

"The fall from grace that Gupta has suffered as a result of the case is as steep as I have ever seen. This is a fall from grace of Greek tragedy proportions. This was a man who was an iconic figure, a role model for countless people around the world. He is no more," Naftalis said.

Naftalis added that Gupta has made extraordinary contribution to society and helped many people, which is why he deserves credit for his good deeds.

"Based on his body of work, it (insider trading case) is a total aberration. Gupta had one of the best reputations on the planet. His reputation was a lot more important to him than money. Loss of reputation is an extremely severe punishment as he has lost everything he spent six decades building."

Assistant US Attorney Richard Tarlowe argued for a sentence of at least eight years during the hearing, saying that Gupta "knew as much about the sanctity of these types of corporate confidences as anybody, and that's what makes it so shocking."

Gupta's defence had wanted no jail time and had requested a sentence of probation coupled with community service in Rwanda, a proposal which Rakoff said was "very innovative and ingenious."

"I thought this was the Peace Corps for insider traders," the judge said on Gupta's offer to work on healthcare initiatives in Rwanda.

"But I think if everything you told me about 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."

Rakoff said insider trading is a crime which is easy to commit but hard to catch, thereby warranting a stronger need for deterrence.

"The effect of the crime places in jeopardy the integrity of the market place. If people say the markets are rigged, those with inside information are getting rich at the expense of rest of us, cynicism will be created. This is a very serious crime. This is a country where honesty pays off," the judge said.

Rakoff said Gupta is unlikely to repeat his "transgressions" after having suffered such a blow to his reputation.

"General deterrence, however, suggests a different conclusion. Others similarly situated to the defendant must therefore be made to understand that when you get caught, you will go to jail."

Ex-Goldman exec given 2 years for inside trades

NEW YORK (AP) A former Goldman Sachs and Procter & Gamble Co. board member from India was sentenced to two years in prison Wednesday, culminating a spectacular fall from grace for a man who retained support from prominent business and civic leaders even after he was convicted of feeding inside information about board dealings to a billionaire hedge fund owner who was his friend.

Rajat Gupta, 63, learned his fate from U.S. District Court Judge Jed Rakoff, who defended his leniency, blasting federal sentencing guidelines that called for Gupta to serve at least 6{ years behind bars. He also ordered him to pay a $5 million fine.

Citing information he received under seal, Rakoff said Gupta's crimes may have occurred because Gupta may have "longed to escape the straightjacket of overwhelming responsibility, and had begun to loosen his self-restraint in ways that clouded his judgment.''

The Harvard-educated businessman long respected on Wall Street was one of the biggest catches yet for the federal government in its five-year crackdown on insider trading that has so far resulted in 69 convictions.

Gupta was ordered to report to prison on Jan. 8.

Reading from a statement, he said: "The last 18 months have been the most challenging period of my life since I lost my parents as a teenager.

"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.''

The dealings by Gupta that were highlighted at his spring trial stemmed from his relationship with Sri Lanka-born Raj Rajaratnam. The one-time billionaire hedge fund boss controlled up to $7 billion in accounts, giving him a firm footprint in the financial markets and influence that impressed someone as widely regarded as Gupta.

"His conduct has forever tarnished a once-sterling reputation that took years to cultivate,'' U.S. Attorney Preet Bharara said after 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.''

Prosecutors described how Gupta raced to telephone Rajaratnam with stock tips sometimes only seconds after getting them from board conference calls, allowing Rajaratnam to make more than $11 million in illegal profits for him and his investors. Rajaratnam is serving an 11-year prison sentence after his conviction last year.

The narrower insider trading case against Rajaratnam and his co-conspirators resulted in 26 convictions and was described by Bharara as the biggest insider trading case in history, successful in part because of unprecedented use of wiretaps more familiar to juries at mob and drug trials.

Prosecutors say Rajaratnam earned up to $75 million illegally through his trades while Gupta's attorneys point out that their client earned no profits.

At trial, Gupta was convicted of three counts of securities fraud and one count of conspiracy, insider trading charges that prosecutors said should result in a prison sentence of up to 10 years in prison.

"While no defendant should be made a martyr to public passion, meaningful punishment is still necessary to reaffirm society's deep-seated need to see justice triumphant,'' the judge said. "No sentence of probation, or anything close to it, could serve this purpose.''

Rakoff said a prison sentence was necessary to send a message to insider traders that "when you get caught, you will go to jail.''

Defense attorney Gary Naftalis immediately promised to appeal, telling Rakoff he wants Gupta free pending appealing. The judge refused the request, saying the law did not allow it but he wished he could.

Prosecutors accused Gupta, a former chief of the global consulting firm McKinsey & Co. and a onetime director of the huge consumer products company Procter & Gamble, of "above-the-law arrogance'' in feeding Rajaratnam inside tips between March 2007 and January 2009.

Goldman Sachs chairman Lloyd Blankfein testified at trial that Gupta appeared to have violated the investment bank's confidentiality policies.

Naftalis told the judge that Gupta had "one of the best reputations on the planet. His loss of reputation is severely strong punishment.''

The defense noted that the Rwandan government supported a program in which Gupta would work with rural districts to fight HIV, malaria and extreme poverty and to help provide food security. The lawyers said the Rwandan government would join with a U.S.-based organization already working in the country to ensure effective supervision of Gupta's service.

They also said prison would spoil the efforts by Gupta, who was born in Kolkata, India, 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. The more than 400 letters written to the judge on Gupta's behalf included documents signed by Microsoft co-founder Bill Gates and former United Nations Secretary-General Kofi Annan.

Rakoff said he could not spare Gupta from prison and only order him to perform community service. "It's not a punishment. It's what he finds satisfaction doing,'' the judge said.

At Gupta's trial, which began in May, the government highlighted a Sept. 23, 2008, phone call it said was made from Gupta to Rajaratnam only minutes after Gupta had learned during a confidential conference call about Warren Buffett's planned investment through Berkshire Hathaway of $5 billion in Goldman.

Moments after the phone call ended at 3:55 p.m., Rajaratnam purchased $40 million in Goldman stock _ an 11th hour trade that ended up making him nearly $1 million _ at the height of the financial crisis that had engulfed the country.

The judge at sentencing called that phone call "the functional equivalent of stabbing Goldman in the back.''

In another recorded phone call in 2008, Rajaratnam told one of his traders that he had gotten a tip "from someone who's on the board of Goldman Sachs'' that Goldman was facing an unexpected quarterly loss.

Gupta, prosecutors said, was motivated to help Rajaratnam because he had a financial stake in some of the hedge fund manager's business ventures.

In his attack on federal sentencing guidelines that are meant to be advisory, Rakoff said "mechanical adding-up of a small set of numbers artificially assigned to a few arbitrarily-selected variables wars with common sense.''

He added: "Whereas apples and oranges may have but a few salient qualities, human beings in their interactions with society are too complicated to be treated like commodities, and the attempt to do so can only lead to bizarre results.''

Rajat Gupta gets two years in prison for insider trading

New York: (Reuters) Disgraced Wall Street titan and philanthropist Rajat Gupta was sentenced to two years in prison on Wednesday, a much lighter sentence than U.S. prosecutors had demanded, by a judge who called his insider trading crimes "disgusting" and "a terrible breach of trust."

Gupta was also ordered to pay a $5 million fine. He was convicted in Manhattan federal court last June for leaking Goldman Sachs boardroom secrets to Raj Rajaratnam, the hedge fund manager at the center of a U.S. government crackdown on insider trading over the past four years.

Some legal experts said Wednesday's sentence came as a surprise, while others said the judge struck a fine balance.

U.S. District Judge Jed Rakoff told a somber courtroom audience, including Gupta's wife and four adult daughters, that the illegal sharing of corporate secrets at the height of the 2008 financial crisis "was the functional equivalent of stabbing Goldman in the back."

Gupta, 63, gave no visible reaction to the sentence, which was given at the end of a 30-minute statement in which the judge spelled out the businessman's "extraordinary" philanthropy over decades that stood in stark contrast to his crimes.

Bill Gates, Microsoft Corp's co-founder, and former United Nations Secretary-General Kofi Annan were among 400 friends and luminaries who had written letters to the judge urging leniency.

During the trial, the court heard how Gupta had tipped off his then friend and business associate Rajaratnam between September and October of 2008. Within minutes of a conference call of members of Goldman's board on September 23, 2008, Gupta told Rajaratnam that influential investor Warren Buffett was infusing $5 billion into the investment bank. Rajaratnam traded on the information as the market was closing.

Rakoff said during the two-and-a-half hour sentencing proceedings that the t ip "was not only overwhelming, but it was disgusting in its implications ... a terrible breach of trust" at a time when Goldman Sachs was in turmoil.

But the judge also said: "I have never encountered a defendant whose past history suggests such an extraordinary devotion ... to people in need."

Gupta had faced a maximum sentence of 20 years for securities fraud and five years for conspiracy. Federal judges have wide leeway in sentencing and Rakoff has a reputation for veering from guidelines for courts in handing down punishment.


Rakoff ordered Gupta to begin his sentence on January 8, 2013. The U.S. Bureau of Prisons will decide where, but his lawyer asked for the minimum security prison in Otisville, New York.

The judge denied Gupta's lawyer's bid to have him freed on bail pending an appeal, which could last as long as two years. His lawyer, Gary Naftalis, said in a statement that "we believe the facts of this case demonstrate that Mr. Gupta is innocent."

The former Goldman director is the most influential corporate figure to be convicted in the wide U.S. probe of insider trading involving fund managers, traders, consultants and executives. He is a former global head of the McKinsey & Co management consultancy, and once sat on the boards of Procter & Gamble Co and American Airlines, as well advising philanthropies including the Bill and Melinda Gates Foundation.

Gupta was born poor in India and orphaned as a teenager but rose to the top of the corporate and philanthropic elite.

His sentence was less than the eight to 10 years sought by prosecutors, but more than the probation and community service in Rwanda sought by Gupta's lawyers. The judge dismissed that proposal as "a kind of Peace Corps for insider traders."

It was also less than some other insider trading defendants who were jailed for between four and 10 years. Rajaratnam is serving an 11-year prison sentence, one of the longest for insider trading.

On Thursday, a U.S. appeals court in New York is set to hear Rajaratnam's appeal. He argues prosecutors should not have been able to play phone taps of his conversations at his trial because he says they were improperly obtained.


Assistant U.S. Attorney Richard Tarlowe argued for a sentence of at least eight years, telling the court "Mr Gupta knew as much about the sanctity of these types of corporate confidences as anybody, and that's what makes it so shocking."

New York securities class action and shareholder rights lawyer Mark Rifkin said the judge "understood both sides of the argument, and the relatively light sentence he imposed balances Gupta's misuse of his position against a lifetime of good work."

But Andrew Stoltmann, an attorney and investor rights advocate based in Chicago, wondered whether Gupta's "Mother Teresa-like halo" had warranted a sentence that was "little more than a slap on the wrist."

"He had such an important role at some of these companies that it is kind of the ultimate betrayal of trust," he said.

When Gupta addressed the court, he read from a statement for six minutes, using bland language that stopped short of fully admitting his conduct, but apologizing to "extraordinary institutions and outstanding people" and to his family.

"I feel terrible that they have been burdened with totally undeserved negative attention. I apologize to them and ask for their forgiveness," Gupta said.

Naftalis, arguing for a lenient sentence, said his client had suffered a "fall from grace of Greek tragedy proportions."

"This was an iconic figure who had been a role model for countless people around the globe," he said. "He is no more."