Thursday, October 25, 2012

Rajat Gupta handed two-year jail term

WASHINGTON, October 25, 2012

Rajat Gupta (63), the former Goldman Sachs Director and McKinsey and Company Managing Partner convicted of supplying confidential information to jailed hedge fund boss Raj Rajaratnam, received a two-year jail term from U.S. judge Jed Rakoff, even as one of the most spectacular insider-trading cases on Wall Street since the financial crisis of 2008 drew to a climax. He has also reportedly been ordered to pay a fine of $5 million.

In June 2012 a jury convicted Mr. Gupta on four criminal felony counts of conspiracy and securities fraud related to his passing on material non-public information on Goldman Sachs to Mr. Rajaratnam, who is himself currently serving out an 11-year jail term. According to reports, at sentencing on Wednesday afternoon Mr. Gupta said he regretted his actions, "noting he lost a reputation he spent a lifetime building."

Charges specifically stemmed from allegations that Mr. Gupta placed a call to Mr. Rajaratnam after learning that Goldman Sachs had approved a $5-billion investment by Warren Buffett's Berkshire Hathaway Inc. As part of its crackdown on impropriety on Wall Street the U.S. Justice Department pressed the case against the Kolkata-born graduate of Harvard Business School since October last year and he is one among 23 individuals who faced criminal charges in connection to Mr. Rajaratnam's Galleon Hedgefund.

While prosecutors in the case, led by Indian-American U.S. Attorney Preet Bharara, argued for a minimum of ten years in prison for Mr. Gupta, defence lawyer Gary Naftalis asked Judge Rakoff for probation and leniency, noting that Mr. Gupta was willing to shoulder a community service sentence in rural districts of Rwanda entailing work with local healthcare programme to combat HIV, malaria, poverty and food insecurity.

Defence lawyers also noted that a lengthy prison sentence would undermine Mr. Gupta's support for new development initiatives, such his work with the Urban Institute of India, aimed at bringing "the private sector, academia and the Indian government together to address accelerating migration to India\'s cities."

In issuing his sentence the judge may have assigned weight to the fact that Mr. Gupta reportedly did not gain personally in terms of material benefit, from tipping off Mr. Rajaratnam during a phone call shortly after a Goldman board meeting. Mr. Rajaratnam, contrarily, was said to have made $75 million off the trades he made based on the information gleaned from Mr. Gupta.

Mr. Gupta, who may have the option to request permission to remain out of prison until his case is heard by the Second Circuit Appeals Court for New York's Southern District, also received close to 400 letters of support from high-profile associates praising his philanthropic work, including Microsoft Chairman Bill Gates and former United Nations Secretary-General Kofi Annan.

Mr. Gates was quoted as saying that while he was "not in a position to comment on any of the particulars of the case against him... [he wanted] to round out Rajat\'s profile as you consider the appropriate sentence for him." Mr. Annan similarly said, "I urge you to recognise Rajat for the good he has done in the world, to give him the credit that he deserves for helping others and to take into account his efforts to improve the lives of millions of people."

Judge Rakoff, however, is likely to have faced the complex task of balancing these dimensions of Mr. Gupta's case with prosecutors' arguments that his insider trading and conspiracy were "shocking" and that his "crimes are extraordinarily serious and damaging to the capital markets.
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