A federal judge considers four major components when handing down a prison term: 1) The need for the sentence to promote respect for the law, 2) afford adequate deterrence to criminal conduct, 3) protect the public from further crimes of the defendant and 4) provide the defendant with needed educational or vocational training, medical care or other correctional treatment in the most effective manner. Today, Judge Jed Rakoff focused on #1 and #2 when he sentenced Rajat Gupta to federal prison.
Rajat Gupta stood in front of U.S. District Judge Jed Rakoff in New York and received a federal prison sentence of 24 months in prison followed by one year of supervised release, far below the 8-10 years of prison that the government was requesting. He was also ordered to pay a fine of $5 million and will report to prison on January 8, 2013 and requested to serve his time at a federal prison camp in Otisville, NY (currently housing insider traders Donald Longueuil and Kenneth Robinson). So much for heading to Rwanda. According to the NY Times, Gupta spoke at the sentencing saying, "The last 18 months have been the most challenging of my life since I lost my parents as a teenager. I regret terribly the impact on my family, friends and institutions that are dear to me."
It has been a long fall for the former McKinsey & Co. executive and distinguished businessman who served on a number of corporate board of director posts. One of those was at Goldman Sachs and his service on that board was the focus of his criminal prosecution and subsequent jury trial where he was found guilty in June. Gupta was found guilty of passing inside, confidential information from a secret board meeting (I think they are all supposed to be secret) in which Goldman discussed a cash infusion of $5 billion by Warren Buffett at the height of the financial crisis in 2008. Gupta passed that information on to his good friend, Raj Rajaratnam (Galleon Group hedge fund) and Raj subsequently bought Goldman shares for a quick profit. That's how insider trading works....and that's how Rajaratnam ended up in a federal prison in Massachusetts for 11 years (expected to be released July 4, 2021 .... Happy Independence Day). Gupta, like Rajaratnam, declined to testify in his own defense.
Gupta (63), born in Maniktala, India, graduated from the Indian Institute of Technology with a degree in Mechanical Engineering and then went on to receive his MBA from the Harvard Business School. He joined McKinsey & Co. out of business school and rose to become the global head of the company after 20 years. In addition to his leadership role at McKinsey and his directorship at Goldman Sachs, he served on the boards of Proctor & Gamble, American Airlines and the Bill & Melinda Gates foundation. He was a trustee to the Rockefeller Foundation, a special adviser to U.N. Secretary Kofi Annan, and was on the U.N. Commission on the Private Sector and Development. He no longer holds any of these positions and has spent most of the past year working on his criminal defense.
Gupta had received over 400 letters of support that were sent to Rakoff, but in the end it was not enough to overcome the public's demand, and the strong government position, that executives be held accountable for their actions (I'm sure we could come up with a long list of those who have not been). Even letters from former U.N. Secretary Kofi Annan and billionaire Bill Gates were not enough to convince Rakoff that probation would be sufficient enough of a punishment. The public weighed in on what they felt was a proper prison sentence with over half asking for a prison term of over 6 years in an unscientific poll at the NY Post.
Gupta was credited with being instrumental in the founding of the Indian School of Business (ISB) and was a frequent speaker there for the students. In an address to the Class of 2009, Gupta said to the students:
I was in your shoes roughly 35 years ago. And if I reflect on that time and I reflect on the early years, the first lesson was: you can learn from every experience and everything that you do.
If Gupta were to fast forward from his years as a student at IIT and Harvard, it is inconceivable that he saw this as an outcome. The challenge for Gupta will be to see what he can learn from this experience, but at this moment, I'm sure that alludes him.
Tomorrow, life goes on at the federal courthouse at 500 Pearl Street. Former Galleon Group portfolio manager Michael Cardillo, who pleaded guilty on insider trading charges and cooperated / testified against Mr. Gupta, will be sentenced in the very same courtroom by Judge Rakoff. Cardillo testified that Gupta had passed tips on information about Proctor & Gamble board meetings to Rajaratnam. Gupta was found "not guilty" on those charges. Despite that, the government prosecutors are looking favorably on Cardillo as they are asking the judge for a sentence of probation based on his "extraordinary" cooperation. Another lesson: It pays to cooperate.
My thanks to photographer Rick Maiman whose pics of white-collar defendants, prosecutors and lawyers help bring a human face to a story.
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