Rajat Gupta found guilty of insider trading

Rajat Gupta, the retired global head of McKinsey & Co, has been found guilty of insider trading by a 12-member jury who gave its verdict in the US District Court in Manhattan on Friday.  

Gupta, who now faces prison, is the most high-profile corporate executive on Wall Street to be ensnared in the sweeping investigation by the US government that has lasted four years and involved the use of wiretaps.

"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," Manhattan US Attorney Preet Bharara said in a statement.



Gupta was found guilty of three counts of securities fraud (out of a total of five) and one count of conspiracy on the second day of jury deliberations. One charge of securities fraud carries a maximum of 20 years and conspiracy carries a five years sentence.

The US government had accused Gupta of passing confidential information about Goldman Sachs Group Inc and Procter & Gamble Co., while serving as director, to Raj Rajaratnam, co-founder of Galleon Group Hedge Fund LLP.

Rajaratnam was convicted of insider trading last year and is now serving an 11 year prison term-the longest ever for this crime. It took six days for that jury to reach a sentence in the Rajaratnam case.

Gupta, an IIT and Harvard Business School Graduate, will be sentenced on October 18.

The jury in this trial, made up of eight women and four men, included a  junior school teacher, a psychiatric nurse, a beauty consultant, an executive working for a non-profit organization, and a marketing manager.

Gupta's family, which attended the trial everyday since it began on May 21, began to cry after the verdict was announced.

The prosecution built its case by matching phone calls exchanged between Gupta and Rajaratnam from 2007 and 2009 to the trading done by the Galleon Group on the shares of Goldman Sachs and P&G, which yield millions of dollars in profits or avoiding losses.

The US Federal Bureau of Investigation, which had bugged Rajaratnam's phone, only had one call in July, 2008 with Gupta's voice on it. This call, experts suggested, was the most damaging to Gupta since it displayed the ease with which he discussed the events of a Goldman Sachs board call.

On July 29, 2008, Rajaratnam says, "And there's a rumor, that Goldman might look to buy a commercial bank." He also says, "Have you heard anything along that line."

Gupta says, "Yeah, this was a big discussion at the board meeting." He confirms to Rajaratnam, "Even AIG (American International Group, Inc-insurance company) yeah."

Goldman Sachs Lloyd Blankfein, who appeared as a government witness, testified that Gupta was not authorised to disclose any boardroom meeting information as an independent director.

The most contested instance was the alleged leak of the Warren Buffett-Sachs deal struck after the collapse of Lehman Brothers Holding Inc. in 2008. The prosecution produced phone records that showed at 3.13 p.m. on September 23 that year, Gupta called into a Goldman Sachs boardroom meeting, which discussed Buffett's Berkshire Hathaway Inc. investing $5 billion in the investment bank. Another phone record shows that Gupta called Rajaratnam at 3.54 and 3.55 p.m. The Goldman Sachs shares, which Galleon purchased at 3.56 p.m. and 3.57 p.m., yielded a profit of more than $1.2 million and constituted 18 per cent of the Goldman Sachs shares purchased that day.

Defence lawyer Gary Naftalis had argued that the prosecution had "no real hard direct evidence" and that its case was built on "speculation and guesswork". He also argued that Gupta had no motive to divulge information since he did not benefit from the trade, and that both men were on bad terms during the time the leaks were made.

The defence counsel also brought on several character witnesses who testified that Gupta, co-founder of the Indian School of Business, was an "honorable" and "honest" person who had done a great deal of philanthropic work in heath and education.

"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," said Bharara, who has vowed to clean up Wall Street.