Former Chairman Of Consulting Firm And Board Director, Rajat Gupta, Sentenced In Manhattan Federal Court To Two Years In Prison For Insider Trading
Preet Bharara, the United States Attorney for the Southern District announced that RAJAT K. GUPTA, the former Chairman of an international consulting firm, and a member of the Boards of Directors of The Goldman Sachs Group, Inc. (“Goldman Sachs”) and the Procter & Gamble Company (“P&G”), was sentenced today in Manhattan federal court to two years in prison for crimes stemming from his involvement in an insider trading scheme with his business partner and friend, Raj Rajaratnam, the founder and former head of the Galleon Group (“Galleon”). GUPTA was convicted on June 15, 2012, following a four-week jury trial. He was sentenced today by U.S. District Judge Jed S. Rakoff.
Manhattan U.S. Attorney Preet Bharara stated: “With today’s sentence, Rajat Gupta now must face the grave consequences of his crime – a term of imprisonment. His conduct has forever tarnished a once-sterling reputation that took years to cultivate. We hope that others who might consider breaking the securities laws will take heed from this sad occasion and choose not to follow in Mr. Gupta’s footsteps.”
According to the Superseding Indictment filed in Manhattan federal court, other court documents, evidence presented at trial, and statements made during various court proceedings:
During all relevant times, GUPTA and Rajaratnam maintained a close personal and business relationship. Among other things, GUPTA described Rajaratnam as a close friend; Gupta invested his money in Galleon funds while he served as Chairman of the international consulting firm; Gupta co-owned a fund of funds with Rajaratnam, which invested its money in Galleon funds; Gupta served as Chairman of a $1.5 billion private equity firm in which Rajaratnam committed approximately $50 million and served on the investment committee; and Gupta was given the position of Chairman of Galleon International in 2008, and expected to receive 15% of that fund’s performance fees.
GUPTA repeatedly disclosed material, nonpublic information (“Inside Information”) that he acquired in his capacity as a member of the Board of Directors of Goldman Sachs with the understanding that Rajaratnam would use the Inside Information to purchase and sell securities. Rajaratnam, in turn, caused the execution of transactions in the securities of Goldman Sachs on the basis of the Inside Information, and shared it with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars. On separate occasions that were proven at trial, GUPTA gave Rajaratnam illegal tips that included highly sensitive information about Goldman Sachs. Examples of these tips include the September 23, 2008 tip disclosing the Board’s approval of a $5 billion investment by Berkshire Hathaway, and an October 23, 2008 tip disclosing the fact that Goldman Sachs was losing money for the quarter, which it had never done since becoming a public company. Based on the September tip, Rajaratnam and others at Galleon earned over $1 million in illegal profits. The October tip helped Rajaratnam avoid losses of several million dollars.
At trial, GUPTA was convicted of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was acquitted on two other securities fraud counts.
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In addition to the prison term, Judge Rakoff sentenced GUPTA, 63, of Westport, Connecticut, to one year of supervised release. GUPTA was also ordered to pay a $5 million fine.
Rajaratnam was convicted in a jury trial on May 11, 2011, of 14 counts of conspiracy and securities fraud. He was sentenced on October 13, 2011, to 11 years in prison, and ordered to pay forfeiture in the amount of $53,816,434, and a $10 million fine.
Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation. He also thanked the Securities and Exchange Commission for its assistance in the investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
Assistant U.S. Attorneys Richard C. Tarlowe and Damian Williams are in charge of the prosecution.