Former Goldman Sachs Group Inc. (GS:US) director Rajat Gupta will learn today whether his conviction for insider trading will lead to years in prison or merely a loss of reputation and months of community service in Africa.
Gupta, who ran McKinsey & Co. from 1994 to 2003, is set to come before U.S. District Judge Jed Rakoff in Manhattan at 2 p.m. to be sentenced for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. Prosecutors say Gupta, convicted in June of securities fraud and conspiracy, deserves as long as 10 years in prison. Gupta, 63, seeks probation and community service, and his lawyer has proposed that he work with needy children in New York or the poor in Rwanda.
The sentencing marks the downfall of a man who rose to the top of corporate America after being orphaned as an 18-year-old in Kolkata. He has served on the boards of Procter & Gamble Co. (PG:US) and AMR Corp. (AAMRQ:US), won praise for his charity from Microsoft Corp. (MSFT:US) Chairman Bill Gates and former United Nations Secretary-General Kofi Annan and, as McKinsey’s youngest managing director, almost tripled firm revenue.
“Rajat Gupta has lived an exemplary life of uncommon accomplishment, compassion and generosity,” defense attorney Gary Naftalis wrote in a legal brief to Rakoff last week.
Gupta “was at the pinnacle of a profession built on protecting client confidences,” prosecutors said in reply. “Yet, time and time again, over the span of nearly two years, Gupta flouted the law and abused his position of trust.”
Gupta, who owns a $9 million waterfront home in Westport, Connecticut, and remains free on bail, is the most prominent of 70 people convicted since a nationwide insider-trading crackdown by U.S. prosecutors began four years ago. Rajaratnam, whose case will come before an appeals court tomorrow, is serving 11 years after his own conviction last year.
Former Diamondback Capital Management LLC portfolio manager Todd Newman and Level Global Investors LP co-founder Anthony Chiasson are scheduled to go on trial Oct. 29 for insider trading. Both deny wrongdoing.
Gupta was convicted by a jury of leaking tips to Rajaratnam, his friend and business partner, about New York- based Goldman Sachs, including information about a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. (B:US) on Sept. 23, 2008, and a tip on a quarterly loss.
The jury acquitted Gupta of charges that he leaked information that Cincinnati-based P&G’s organic sales growth would fall below estimates and that he tipped Rajaratnam, 55, about Goldman Sachs’s earnings (GS:US) in the first quarter of 2007.
Unlike the Rajaratnam prosecution, which was based on dozens of wiretaps of his mobile-phone conversations, the case against Gupta was circumstantial and built on trading records, business relationships and comments by Rajaratnam or others about Galleon’s sources of information. The jury heard one wiretapped conversation between Gupta and Rajaratnam.
At the trial, Goldman Sachs Chief Executive Officer Lloyd Blankfein told jurors that he briefed his board over the phone on the Buffett investment beginning at 3:15 p.m. Within a minute after the call with the directors concluded at 3:53 p.m., Rajaratnam answered a call on his private line from a McKinsey conference room being used by Gupta, according to phone records and testimony.
“I got a call at 3:58, right?” Rajaratnam said on a wiretapped conversation with another trader that was played at the trial. “Saying something good might happen to Goldman.”
In his bid for leniency, Naftalis said Gupta’s crimes were limited to a two-month span in 2008 and presented some 400 letters to the judge chronicling what he said was Gupta’s lifetime of good works.
One letter came from Tharcisse Karugarama, minister of justice and attorney general of Rwanda, who backed a defense proposal that Gupta work with the rural poor fighting AIDS, malaria and extreme poverty. Gupta previously served as chairman of the Global Fund, a public-health advocacy group for the developing world.
Prosecutors, citing non-binding federal guidelines, urged Rakoff to send Gupta to prison for 97 months to 121 months. They said he deserves a stern sentence because he violated confidences and breached his duty as a senior official.
If he imposes a prison term, Rakoff must also decide whether Gupta will report to an institution in coming weeks or may remain free until the outcome of his appeal. The U.S. Bureau of Prisons would decide where Gupta serves his time.
The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).
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