Rajat Gupta, a consummate business insider who once sat on the board of Goldman Sachs Group Inc, was convicted on Friday of leaking secrets about the investment bank at the height of the financial crisis, a major victory for prosecutors seeking to root out illicit trading on Wall Street.
A Manhattan federal court jury delivered the verdict on its second day of deliberations, finding Gupta fed stock tips to his hedge fund manager friend Raj Rajaratnam gleaned from confidential Goldman board meetings. He was found guilty of four of six criminal counts and could face a prison term of up to 25 years.
The conviction burnishes the record of the US Attorney’s Office in Manhattan, which has spent the last several years aggressively prosecuting insider trading. More than 60 people have pleaded guilty or been convicted in cases brought by the FBI and the Manhattan US Attorney in the past four years.
In its case against Gupta, who headed elite business consultancy McKinsey & Co for nine years and is the most prominent person charged in the insider trading crackdown, the US government faced a challenge: There was no evidence he traded on any of the information he allegedly leaked and the government did not have the trove of FBI wiretaps that helped secure the conviction of Rajaratnam a year ago.
The verdict capped a four-week trial that featured Goldman chief executive officer Lloyd Blankfein as a star government witness. All of the counts Gupta was convicted of involved tips and trades in Goldman stock in September and October 2008, including passing inside information on a crucial US$5 billion investment by Warren Buffett’s Berkshire Hathaway Inc.
As the verdict was read in court by the jury foreman, there was a gasp when Gupta was pronounced “not guilty” on the first count of securities fraud. The count involved whether Gupta told Rajaratnam about Goldman’s quarterly earnings after a March 12, 2007, board meeting. He was then declared guilty on three other securities fraud counts and one count of conspiracy.
Gupta was also found not guilty of divulging the quarterly earnings of Procter & Gamble Co, whose board he also sat on, in January 2009.
After the verdict, an ashen-faced Gupta glanced grimly back at his wife and daughters. Later, the family hugged each other as Gupta, 63, tried to console his distraught daughters.
“This is only round one,” said his defense attorney, Gary Naftalis. “We will be moving to set aside the verdict and will, if necessary, appeal the conviction.”
One of the jurors, child welfare worker Ronnie Sesso, 53, said that the jury had struggled to determine what Gupta’s motive might have been in passing tips to Rajaratnam.
“Gupta was a true friend,” she said. “Raj was a snake in the grass.”
US District Judge Jed Rakoff scheduled a tentative sentencing date of Oct. 18. The maximum sentence for securities fraud is 20 years and the maximum sentence for conspiracy is five years, although it seems unlikely that Gupta will receive such a heavy punishment.
Rajaratnam, the founder of Galleon Group hedge fund, was convicted of 14 counts of securities fraud and conspiracy last year and is serving an 11-year prison term.
Earlier this month, a New Jersey federal court handed a 12-year sentence — the longest ever for insider trading — to a corporate lawyer whose illegal conduct stretched over 17 years.