U.S. seeks up to 10 years in prison for Rajat Gupta

Former Goldman Sachs Group Inc board member Rajat Gupta (R) leaves Manhattan Federal Court with his lawyer, Gary Naftalis, following a guilty verdict in New York June 15, 2012.

NEW YORK (Reuters) - Former Goldman Sachs Group Inc (GS.N) board member Rajat Gupta deserves to spend eight to 10 years in prison for his "shocking" insider-trading crimes, U.S. prosecutors said in court papers on Wednesday.

Gupta, who is also a former head of management consultancy McKinsey & Co, is set to be sentenced on October 24 in U.S. District Court in Manhattan. He was found guilty in June of leaking Goldman boardroom secrets to his hedge fund friend Raj Rajaratnam, who is now serving an 11-year prison term for insider trading.

Gupta, 63, is the most influential corporate figure to be caught in a broad insider trading crackdown of the last four years. His lawyers on Wednesday filed court papers asking he be spared prison, citing his years of charitable works, and suggested he be ordered to probation and community service instead.

The government said Gupta should get a significant prison term, saying his "crimes are shocking" and he time and time again flouted the law and abused his position of trust as a corporate board member.

"Although Gupta's criminal conduct appears to represent a deviation from an otherwise law-abiding life, Gupta's crimes were not an isolated occurrence or a momentary lapse in judgment," Assistant U.S. Attorney Richard Tarlowe wrote in the government's filing. "Indeed, the opposite is true."

Prosecutors also said that Goldman is seeking $6.8 million in restitution for legal fees and related costs it paid related to the Gupta case. About 25 percent of that amount is compensation that Goldman paid to Gupta as a director, a court filing said.

A spokesman for Goldman Sachs, Michael DuVally, declined to comment.

Christopher Mumma, a spokesman for Gupta's attorneys, declined to comment.

Gupta faces a potential sentence of 20 years in prison or more on the charges, though such a long sentence is seen as unlikely. The sentence will be handed down by U.S. District Judge Jed Rakoff, who presided over his trial.

In requesting a non-prison sentence, Gupta's lawyers urged Rakoff to consider Gupta's stunning fall from grace as punishment enough.

"A sentence of probation with a condition of rigorous, full-time community service would fully satisfy ... sentencing objectives," wrote defense attorney Gary Naftalis and Gupta's other lawyers.

The defense outlined a proposal for community service that would include his work with Covenant House, a group that provides services for homeless, runaway and at-risk youth, and a "a less orthodox" plan in which Gupta would live and work with Rwandan government officials to help fight HIV/AIDS and malaria in rural districts.

The Rwanda work "would require Mr. Gupta to confront significant hardships and would thus constitute punishment commensurate with the seriousness of the offense, as Mr. Gupta would be thousands of miles from his family and friends, and would be living in basic accommodations in rural areas of the country," his lawyers wrote.

Gupta has been out on bail since his conviction on securities fraud and conspiracy charges. He lives in Westport, Connecticut.

He is also a former director at American Airlines Corp and Procter & Gamble Co (PG.N). He became well known for philanthropic work in addition to his business career, and he had ties to a prominent business school in his native India.

The case is USA v Gupta, U.S. District Court for the Southern District of New York, No. 11-cr-907.

(Reporting By Basil Katz and Martha Graybow; Editing by Bernard Orr)