Insider trading: Rajat Gupta convicted, may face upto 25 years in prison
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Insider trading: Rajat Gupta convicted, may face upto 25 years in prison

Last Updated: Saturday, June 16, 2012, 09:35
 
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Insider trading: Rajat Gupta convicted, may face upto 25 years in prison
New York: Former Goldman Director Rajat Gupta, the poster boy of Indians at the Wall Street, was on Friday found guilty of illegally tipping off his friend Raj Rajaratnam of confidential market information, in one of America's biggest insider trading cases.

After three weeks of trial, a US court held the 63-year- old guilty of providing insider information to Galleon hedge fund founder Rajaratnam, who was sentenced last year to 11 years in prison for insider trading.

Gupta was found guilty by a federal court in Manhattan on four counts, out of six.

The court will pronounce the sentence on October 18.

The conviction marks a tragic fall for the Kolkata-born financial wizard, who rose from a modest background to become a force to reckon with at the Wall Street.

One of the jurors told the media it was a difficult decision for them but the evidence against him was overwhelming.

He said Gupta was a person who came to the US and rose through the ranks. He led a "story book life" and had full support of the family as he saw during the trial.

Gupta was convicted on three counts of securities fraud and one count of conspiracy for passing confidential boardroom information about Goldman and Proctor & Gamble companies to the hedge fund that earned millions of dollars trading on his tips.

He was acquitted of two counts of securities fraud.

Reacting to the verdict by a 12-member jury, defence lawyer Gary Naftalis said he was disappointed that the jury convicted Gupta on four charges.

"This was only round one of the case and we would appeal if necessary," said Naftalis, adding they continued to believe that Gupta acted with integrity and honesty and never pocketed a dishonest dime.

Gupta's wife and four daughters broke down as the jury read out the sentence but Gupta was expressionless.

As the jury left the court room, Gupta hugged his family members. He did not talk to media as he walked out of the courtroom.

Naftalis said that he was "pleased" that at least Gupta was acquitted on one count of disclosing information about P&G.

The verdict is being regarded as a major victory for US prosecutors as the government drives to stop leaking of corporate secrets to Wall Street.

"Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away," Indian-origin chief Manhattan prosecutor Preet Bharara said in a statement.

"Having fallen from respected insider to convicted inside trader, Mr Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell," he said.

Gupta was found guilty for passing information about the USD 5 billion investment by Warren Buffett's Berkshire Hathaway Inc, and of providing information to Rajaratnam on October 24, 2008 about Goldman stock.

There were five security fraud charges and once conspiracy charge against him.

Out of the five security fraud charges, he was found guilty on three and on the lone conspiracy charge.

FBI Assistant Director Janice K Fedarcyk said the verdict was a "milestone" in the agency's drive, initiated in 2007, against illegal conduct in the hedge fund industry.

"Rajat Gupta broke the law, plain and simple. Gupta used his exclusive access to the board room to violate his fiduciary responsibility, repeatedly sharing confidential, inside information with his friend Raj Rajaratnam," said Fedarcyk.

The high-profile trial of Gupta, who served on the board of Goldman Sachs and headed McKinsey & Co, began on May 21 and lasted for three weeks.

Securities fraud carries a maximum prison sentence of 20 years while conspiracy carries a five-year maximum prison sentence.

Gupta will remain free on bail until his sentencing.

Besides his tenure at Goldman Sachs and McKinsey, which he ran from 1994 to 2003, Gupta served on the boards of the Rockefeller Foundation and the Bill & Melinda Gates Foundation. He is also a co-founder of the Indian School of Business in Hyderabad.

Much of the evidence against Gupta was circumstantial, including phone records that showed he promptly called Rajaratnam after receiving confidential information.

Gupta's defence, however, pointed out to the lack of direct evidence against him. They also told the court that Gupta had fallen out with Rajaratnam over a USD 10 million loss he incurred in investment with him.

Judge Jed Rakoff said Gupta was not a flight risk and Gupta will remain free on bail till his sentencing.

Prosecutor Richard Tarlowe, in his closing arguments, said there was a "pattern" in the timing of the calls from Gupta after a board meeting, the trades in Goldman and proctor stock by Rajaratnam and the resultant profits or losses avoided.

He said to the jury "this is not a coincidence."

Gupta's lawyer Naftlais stressed throughout the trial that Gupta had a falling out with Rajaratnam after he lost his USD 10 million in an investment fund Voyager with the Sri lankan.

Naftlais, one of the most reputed attorneys in New York, said Gupta had no motive to tip Rajaratnam since he never needed any financial benefits and was instead considering suing Rajaratnam after he lost his money.

The trial had its emotional moments too, the first came when Gupta's eldest daughter Geetanjali testified that she loved her father and would do anything to help him.

"I would not lie on the stand though," she said before leaving the witness stand. An emotional Gupta choked up as he looked at his daughter.

Then as Naftalis requested the jury in his summations to give a not-guilty verdict, Gupta's face strained and tears welled up in his eyes.

"For Gupta, this is the case in which whatever you decide here will mark whatever future he has left," Naftalis told the jury in a sombre tone.

Unlike Rajaratnam's prosecution, which was based on dozens of wiretaps of his mobile-phone conversations, the government's case regarding Gupta was circumstantial. It relied on phone records, emails, stock reports to show that Gupta had called Rajaratnam after his company board meetings.

At the trial, Goldman CEO Lloyd Blankfein testified that he had briefed his board members over the phone on the Buffett investment beginning at 3:15 pm Within a minute after the call with the directors concluded at 3:53 pm, Rajaratnam answered a call on his private line from a McKinsey conference room being used by Gupta, according to phone records and testimony.

Rajaratnam then got off a call and hurriedly told a Galleon trader Ananth Muniyappa to buy Goldman Sachs stock, Muniyappa testified.

Galleon bought 267,000 shares. Prosecutors played a wiretapped recording of a Rajaratnam phone call from the next day.

"I got a call at 3:58, right?" Rajaratnam could be heard telling trader Ian Horowitz. "Saying something good might happen to Goldman."

Other evidence focused on Galleon's sale of 150,000 Goldman Sachs shares on Oct. 24, 2008, when the bank was losing money while Wall Street expected a profit.

Jurors listened to a wiretap of Rajaratnam telling Horowitz, "I heard yesterday from somebody that was on the board of Goldman Sachs that they were going to lose USD 2 a share. The market has them making USD 2.50."

Prosecutors said Gupta leaked the information because he sought financial gains from Rajaratnam, including his help with a new fund he was starting, as well as a share of the "extraordinary profits" at Galleon.

Gupta was to become chairman of Galleon's international fund, according to the government.

Rajaratnam also increased by USD 4 million Gupta's stake in a Galleon investment after Gupta told him about a Goldman Sachs board discussion held in St Petersburg, Russia, prosecutors said.

"Rajaratnam offered Gupta many benefits," Tarlowe said in his summation on June 13. "What was good for Rajaratnam and Galleon was good for Gupta."

Naftalis slammed the circumstantial evidence of the government saying the prosecution lacks any "real, hard, direct evidence" against his client. He said Gupta was merely returning phone calls after he got off meetings and that the calls to Rajartanam were intended to get information from him about a USD 10 million investment loss Gupta incurred in Voyager and not to tip him with insider information.

Rajaratnam was being "evasive" and was avoiding Gupta, Naftalis said.

One of the jurors, Richard Lepkowski, 51, said, "Raj Rajaratnam was a very manipulative man. Rajaratnam made it easy for Gupta to break the law."

During the trial, Naftalis had also wanted to present the charitable and philanthropic work Gupta had been involved with. But Judge Rakoff ruled that the six character witnesses Naftalis put on stand could not speak more than a line or two about Gupta's charitable works.

"If Mother Teresa were charged with bank robbery, the jury would still have to determine whether or not she committed a bank robbery," Rakoff had said ahead of the trial.

Apart from working in the areas of HIV-AIDS and malaria eradication, Gupta had also co-founded the Indian School of Business, one of the most reputed institutes in India.

Reacting to the verdict, a prominent Indian American lawyer Ravi Batra said the jury spoke fast, and with two "not guilty" verdicts, "made it more just."

"Gupta, in a moment of near insanity, successfully sued the US government to dismiss the SEC administrative case and got a double-barrel response: criminal indictment and a civil case," Batra said in a statement.

Batra said the sentencing stage will cause Judge Rakoff to take stock of Gupta's lifelong good deeds to determine a reduced just sentence.

"Wall Street, directors and consulting firms have just had one of their own convicted for cheating the investors on Main Street.

High time for fiduciaries to honor their duties honestly. Preet Bharara is a global hero..., even as markets in the EU and across the world continue to suffer from an economy tainted by financial misconduct by self-proclaimed masters of the universe; Bharara has reminded them all that they are subject to the rule of law and will be prosecuted to the full extent of the law."

PTI




First Published: Saturday, June 16, 2012, 08:58


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