BREAKINGVIEWS - Rajat Gupta insider trading sentence apt but incomplete

Thu Oct 25, 2012 9:52am IST

Former Goldman Sachs Group Inc board member Rajat Gupta leaves the U.S. District Court with his lawyer Gary Naftalis after he was sentenced in Manhattan, New York October 24, 2012. REUTERS/Adrees Latif

Former Goldman Sachs Group Inc board member Rajat Gupta leaves the U.S. District Court with his lawyer Gary Naftalis after he was sentenced in Manhattan, New York October 24, 2012.

Credit: Reuters/Adrees Latif

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Reynolds Holding

New York (Reuters Breakingviews) - Rajat Gupta's insider trading sentence is deserved but incomplete. The former McKinsey boss and Goldman Sachs (GS.N) and Procter & Gamble director asked to pay his debt to society by helping impoverished Rwandans. Instead he got two years in the slammer. His request oozed chutzpah but made a useful point. The U.S. justice system should punish crooks like him while also exploiting their skills.

A federal jury convicted Gupta last June of leaking boardroom secrets to Raj Rajaratnam, the Galleon Group founder serving 11 years in prison for securities fraud. U.S. prosecutors requested almost as much for Gupta, citing his blatant abuse of confidences in giving Rajaratnam enormously profitable tips. But Gupta's charitable work and otherwise spotless record led U.S. District Judge Jed Rakoff to the two-year sentence, towards the low end of other recent insider trading penalties.

A different outcome would not have been a stretch. Since U.S. sentencing guidelines became nonbinding in 2005, judges have had broad leeway to tailor punishments. One federal jurist, for instance, ordered a Bristol-Myers Squibb executive in 2009 to write a book while on probation for lying to the government. In 2010, another judge condemned an investment-firm chief who peddled dodgy tax shelters to give ethics lectures on top of his jail sentence.

Gupta suggested something more creative: probation and a stint working with relief efforts in Rwanda and runaway kids in New York. His already extensive volunteer work would, in effect, have become mandatory. That's favoritism for the moneyed few, not punishment.

Judge Rakoff wisely rejected the proposal, stressing that it would not have deterred other fraudsters. But he also missed an opportunity. Gupta is, unlike most criminals, an orphaned immigrant with enough talent to have achieved spectacular corporate success. The U.S. government could have used that talent for free - not to benefit Rwandans, but for anything from educating American business students to solving the budget crisis.

Public service would, of course, have come with a prison term. Because he was such a trusted insider, Gupta's crimes were egregious betrayals. So he deserved stiff punishment, despite what Rakoff called his "big heart and helping hand." Ideally, though, it would have included doing good as well as doing time.

CONTEXT NEWS

- Rajat Gupta, the former head of consulting firm McKinsey and board member of Goldman Sachs and Procter & Gamble, was sentenced on October 24 to two years in prison, one year of supervised release and a $5 million fine. Prosecutors had sought a minimum term of eight years, while Gupta, 63, had requested probation and a community service program that included helping the poor and sick in Rwanda.

- He was convicted on June 15 on three counts of passing inside information to Galleon Group founder Raj Rajaratnam, including confidential details of Goldman board meetings. He was also convicted of one conspiracy charge but found not guilty on two other counts of securities fraud.

(Editing by Antony Currie and Katrina Hamlin)

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