Rajat Gupta Goes to Prison as a Deterrent to Insider Trading

Judgement Statement

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Washington, DC – Former Goldman Sachs director Rajat Gupta was sentenced on October 24 to two years in prison, followed by another year of parole and fined USD $5 million after being found guilty on June 15 of this year of leaking board room secrets to Raj Rajaratnam, Sri Lankan-born hedge fund manager, who was sentenced to 11 years in prison last year in an insider-trading case.

In addition to the sentencing, Judge Jed S. Rakoff wrote, “Meanwhile, Mr. Gupta is ordered to surrender to the designated prison by 2 p.m. on January 8, 2013.”

Commenting on the sentencing, Manhattan US Attorney Preet Bharara stated: “With today’s sentence, Rajat Gupta now must face the grave consequences of his crime – a term of imprisonment.”

“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,” added India-born Bharara.

The leniency in sentencing for the 63-year-old, in light of the prosecutors’ request of a term of eight to 10 years in prison, is attributed to a file full of letters from people like Bill Gates and Kofi Annan pleading for leniency in his case, because of a lifetime of charitable work. One of the sources familiar with the case said the folder of letters was a few inches thick and spoke of the man who was dedicated to charity work.

Judge Rakoff could not help mentioning his charity work as he wrote in his order, “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.”

Ironically, Anil Kumar, the pivotal government witness in this case who decided to testify against Gupta, his long-time mentor and friend, walked away in July with just two years in probation and a meager fine of $25,000.

On Kumar’s zero year prison sentence, Sandipan Deb, a senior journalist who recently announced that he is working on a book on Rajat Gupta, commented in an article titled, “Stoop low and walk free,” about a 72-page “sentencing memorandum” submitted by Kumar’s lawyers to Judge Denny Chin, pleading for a lenient sentence.

“Any intelligent Indian reading the document can have either of only two reactions: a hearty laugh, or lock-jawed amazement at the sheer misinformation and hypocrisy,” wrote Deb in his commentary.

Deb also lambasted the argument that Kumar’s lawyers made that his going to prison would “harm” India. Describing India as an “unforgiving” society, the lawyers recommended keeping Kumar out of prison “for the sake of those ungrateful merciless Indians, and because Indians are the only ones who will pay for his services anymore,” humored Deb.

The question arises that the same arguments could have been used to give Gupta a suspended sentence, but then Gupta did not speak against fellow Indians involved in the case.

Moreover, although he accepted Gupta’s lifelong charity work, Judge Rakoff noted the possibilities that Gupta would have to do his charitable works after his prison term is over, and that some prison time was necessary as a deterrent to insider trading.

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