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Ex-Goldman executive gets two-year term

Updated 12:43 am, Thursday, October 25, 2012

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  • Rajat Gupta (L), former Goldman Sachs Inc. director and former senior partner at McKinsey & Co., enters Federal court with his lawyer Gary Naftalis for his sentencing on October 24, 2012 in New York City. Gupta, 63, was convicted by a federal jury in June for leaking inside information to hedge-fund manager Raj Rajaratnam. Photo: Spencer Platt, Spencer Platt/Getty Images / Getty Images North America
    Rajat Gupta (L), former Goldman Sachs Inc. director and former senior partner at McKinsey & Co., enters Federal court with his lawyer Gary Naftalis for his sentencing on October 24, 2012 in New York City. Gupta, 63, was convicted by a federal jury in June for leaking inside information to hedge-fund manager Raj Rajaratnam. Photo: Spencer Platt, Spencer Platt/Getty Images

 

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NEW YORK -- As their father walked into the media hoard surrounding the back entrance of 500 Pearl St. -- the U.S. District Court in Manhattan -- the Gupta family watched with what looked like stoic detachment Wednesday.

The mosh-pit of microphones and cameras lurched forward toward their black Chevrolet Suburban as Westport resident Rajat Gupta, 63, and his lawyer, Gary Naftalis, tried to move through the herd. It took several minutes for them to cross the barricade set up for the media and then the sidewalk to their car.

About a half-hour earlier, U.S. District Judge Jed Rakoff sentenced Gupta, a former Goldman Sachs board member, to two years in prison, followed by a year of supervised release, for insider trading. Gupta and two gallery rows full of family and friends met the sentence with silence inside courtroom 14B when Rakoff handed down his punishment, including a $5 million fine.

Anil Sood, a World Bank vice president and long-time childhood friend of Gupta, said he hoped Rakoff would let Gupta "walk away." Sood said he first befriended Gupta in the fifth grade in Delhi, India. They attended college together and immigrated to the United States at around the same time.

"It still feels too much," Sood said outside the courtroom. "He's been punished enough on a personal level."

Rakoff ordered Gupta to turn himself in Jan. 8 to begin his prison sentence. Naftalis argued the devastating loss to Gupta's reputation and standing in the business community was enough punishment, but prosecutors cited the need to deter insider trading among high-profile business figures in positions of trust. Rakoff agreed.

"This is a crime that's easy to commit and hard to catch," the judge said. "Therefore, the need for a general deterrence is strong."

A jury convicted Gupta of three counts of securities fraud and conspiracy following a trial in May and June.

Prosecutors accused Gupta of leaking secrets about Goldman Sachs to hedge fund manager Raj Rajaratnam in September and October 2008. Gupta was convicted of tipping off Rajaratnam to a $5 billion investment in Goldman Sachs that billionaire Warren Buffet planned to make and about poor quarterly earnings at Goldman. Rajaratnam made millions off the tips, and is now serving 11 years in prison for his role in the insider trading scheme.

Gupta's daughters, one of whom testified as a character witness during the trial, and his wife declined to comment outside the courthouse.

Gupta gathered in a corner of the 14th floor lobby with his family during a 10-minute break Rakoff imposed before announcing the sentence Wednesday afternoon. Before the break, Gupta addressed the court and delivered a short apology designed to augment his lawyer's strategy -- to convince Rakoff to mete out mercy for a world-renowned philanthropist.

"The last 18 months have been the most difficult period of my life since I lost my parents as a teenager," Gupta said. "The verdict was devastating to my family, friends and me."

Gupta apologized to McKinsey & Company, the consulting firm he led from 1994 to 2003, and to his friends and family behind the area designated for the defense team. The press filled the other side of the courthouse and some of the jury box.

"Every time I look at their faces, I become overwhelmed with a deep sense of letting them down," Gupta said of his family.

In the end, neither Gupta's apology nor his big-name supporters could save him from prison. Rakoff told the court several times he believed the hundreds of letters Gupta's defense team had sent the court in support of their client. These included letters from former United Nations Secretary General Kofi Annan and Microsoft founder Bill Gates lauding Gupta for his contributions to international public health issues, specifically the Global Fund to Fight AIDS, Tuberculosis and Malaria.

"I've received some suggestions that this is a rich man who through his connections could get a lot of people who can write letters," Rakoff said. "I disagree."

Naftalis tried to use his client's philanthropy to his advantage, proposing a "less orthodox, but innovative" alternative to prison time -- leading a public health initiative to fight HIV in Rwanda, according to his sentencing memo. Rakoff referred to the novel proposal as "the Peace Corps for insider traders," one of a handful one-liners he delivered through the hours-long sentencing proceeding.

"He would be doing things like this without a court order," Rakoff said of Gupta and his philanthropy. "Looking at it at a cynical point of view, it's not punishment."

Rakoff railed against federal sentencing guidelines -- calling them speculative and arbitrary in some cases -- and chose not to apply them to this case.

In his argument for prison time over community service, Rakoff said history remains replete with examples of good men falling from grace. He cited the seriousness of insider trading and the distrust it sows toward fairness and honesty in the financial markets.

"Once you have a situation that develops where people say it's all fixed and rigged ... you create a cynicism that's hard to overcome," Rakoff said. "It's a crime, a very serious crime in several respects."

After Rakoff handed down the sentence, Naftalis told the courtroom he intended to expedite an appeal on the conviction.