Former Goldman Sachs director Rajat Gupta was sentenced Oct. 24 for an insider trading conviction handed down by a Manhattan federal court in June. Gupta’s sentence includes two years in prison and a $5 million fine.
“The last 18 months have been the most challenging of my life since I lost my parents as a teenager,” Mr. Gupta, who became an orphan at 18, said in a statement to the court. “I regret terribly the impact on my family, friends and institutions that are dear to me.”
Gupta’s sentence was lenient compared to the eight to 10 years U.S. prosecutors—led by Preet Bharara, U.S. Attorney for the Southern District of New York—requested. Although Judge Jed Rakoff said Gupta’s insider trading crimes were “disgusting” and a terrible breach of trust, while imposing his sentence he explained his consideration of Gupta’s longtime selflessness and philanthropy.
“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,” Rakoff said. “He is a good man. But the history of this country and the history of the world is full of examples of good men who did bad things.”
Gupta’s is a story of a good man who made a mistake of serious consequence. Born in Kolkata, India, Gupta graduated from Harvard Business School and quickly moved up the ranks of McKinsey & Company—first as an ace consultant, then director.
Gupta became well known for his compassion and humanitarianism. When Gupta retired in 2007, he became active on Wall Street and many boards, including Goldman Sachs. But he also helped lead organizations that fight poverty, tuberculosis and AIDS, advising philanthropists such as Microsoft Corp. co-founder Bill Gates and President Bill Clinton.
During this period he met Raj Rajaratnam, a hedge fund manager, and the pair joined forces to start a private equity firm. When the government wire tapped Rajaratnam’s cell phone, agents heard Gupta sharing Goldman Sachs boardroom secrets. Gupta was also recorded bragging about his Goldman inside tipster. Gupta was arrested and charged with insider trading a year ago—one of 23 charged in an insider trading conspiracy that spanned seven years—the plot of Rajaratnam, convicted in 2011.
Gupta pled not guilty to the charges, and the government’s case was built largely on circumstantial evidence. Prosecutors did not present any direct wiretap evidence of the crime, but instead presented phone records, instant messages and emails that corresponded with certain trading logs. For example, prosecutors presented one instance when Gupta participated in a Goldman Sachs board call and discovered billionaire Warren Buffett planned to invest $5 billion in the bank.
Before the news was announced publicly, Gupta placed a call to Rajaratnam, who then purchased shares in Goldman Sachs. Based just on circumstantial evidence presented by prosecutors, the tips Gupta provided Rajaratnam cost the bank about $5 million.
At sentencing, Rakoff told Gupta and the courtroom his actions during the height of the financial crisis were the equivalent of “stabbing Goldman in the back.”
“The proof of some of these tips was not only overwhelming, it was disgusting,” Rakoff said during sentencing, before speculating: So why did Mr. Gupta do it?
“Having finished his spectacular career at McKinsey in 2007, Gupta, for all his charitable endeavors, 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.”
Although issuing a far lighter sentence than prosecutors requested, Rakoff did not agree with the defense team’s recommendation of probation and community service in an area such as Rwanda, nor did he allow Gupta to remain free pending appeal. Instead, he ordered him to appear to a federal medium-security prison Jan. 8. The system does not offer parole, but with good behavior Gupta could be freed in as few as 21 months.
Gupta’s sentence could have been impacted by the more than 400 letters in support of him sent to the court, from influential friends such as Gates and former United Nations secretary general Kofi Annan. His sentence was less than several others issued to insider trading convicts during the current government crackdown on the crime. More than 70 bankers, lawyers, executives and traders have been convicted of insider trading in the past three years, and some have received sentences between five and ten years. Rajaratnam is serving one of the longest sentences for the crime, 11 years.
Though less than he recommended, Bharara was pleased with the sentence and saw it as a warning to others contemplating the crime.
“With today’s sentence, Rajat Gupta now must face the grave consequences of his crime—a term of imprisonment,” Bharara said in a statement. “His conduct has forever tarnished a once-sterling reputation that took years to cultivate. 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.”
