Maine news, sports, weather from Portland Press Herald / Maine Sunday Telegram, Portland, Maine

October 25, 2012

From respect to disgrace for inside trader

Rajat Gupta receives two years in prison for helping a friend who made up to $75 million illegally.

The Associated Press

NEW YORK - A former Goldman Sachs and Procter & Gamble Co. board member once widely respected worldwide for his business smarts was sentenced Wednesday to two years in prison for feeding inside information about board dealings with a billionaire hedge fund owner who was his friend.

Rajat Gupta, 63, of Westport, Conn., was sentenced by U.S. District Court Judge Jed Rakoff, who also ordered him to pay a $5 million fine. 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 at trial 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.

The judge 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 did not immediately rule on the request.

Prosecutors had 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 from March 2007 to January 2009.

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

"Gupta's crimes are shocking," the government wrote. "Gupta's crimes are extraordinarily serious and damaging to the capital markets. ... It understandably fuels cynicism among the investing public that Wall Street is rigged and that Wall Street professionals unfairly exploit privileged access to information. This is particularly troubling at a time when there is widespread concern about corruption, greed and recklessness at the highest levels of the financial services industry."

(Continued on page 2)

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