Rajat Gupta, the former Goldman Sachs director and McKinsey managing director who rose to the pinnacle of Wall Street, has been sentenced to two years in prison for passing inside tips to his business partner.
Gupta, who ran McKinsey from 1994 to 2003, was sentenced yesterday by US District Judge Jed Rakoff in Manhattan for leaking stock tips to Galleon Group co-founder Raj Rajaratnam.
Gupta (63) was convicted by a jury in June of one count of conspiracy and three counts of securities fraud.
Judge Rakoff ordered Gupta to report to prison on January 8 and fined him $5 million, rejecting a bid to allow him to remain free pending appeal.
The judge said he would recommend to US Bureau of Prisons officials that Gupta serve his term at the federal prison in Otisville, New York.
The evidence that Gupta passed illegal information about New York-based Goldman
Sachs to Rajaratnam, his friend and business partner, "was not only overwhelming, it was disgusting in its implications," Judge Rakoff said in court.
Gupta leaked information about a $5 billion investment in Goldman Sachs by Warren Buffett's Berkshire Hathaway on September 23, 2008, and a tip on a quarterly loss. Judge Rakoff said yesterday he was especially troubled by Gupta's actions during this tumultuous period.
"With Goldman Sachs in turmoil but on the verge of being rescued from possible ruin by an infusion of $5 billion, Gupta, within minutes of hearing of the transaction, tipped Rajaratnam, so that the latter could trade on this information in the last few minutes before the market closed," the judge said just before he imposed sentence. "This was the functional equivalent of stabbing Goldman in the back."
Prosecutors had sought a prison term for Gupta of as long as 10 years in prison. Assistant US Attorney Richard Tarlowe yesterday argued that Gupta's crimes warranted a substantial prison time because of his prominence in the business world and the egregiousness of his crimes.
Mr Tarlowe said a sentence of probation would give the impression that there is "a two-tier system of justice."
While Gupta didn't personally profit, his tips allowed Rajaratnam to earn millions of dollars, Mr Tarlowe said.
Bloomberg
