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Gupta’s Insider Conviction Tied to Rajaratnam Upheld

Former Goldman Sachs Director Rajat Gupta
Rajat Gupta, former Goldman Sachs Group Inc. director and former senior partner at McKinsey & Co., center, exits federal court after being sentenced for insider trading in New York, on Oct. 24, 2012. Photographer: Victor J. Blue/Bloomberg

March 25 (Bloomberg) -- The insider-trading conviction of Rajat Gupta, who rose to the pinnacle of Wall Street as a Goldman Sachs Group Inc. director and McKinsey & Co. managing partner, was upheld today by a federal appeals court.

Gupta, 65, who was a managing partner at McKinsey from 1994 to 2003, was found guilty in June 2012 of divulging confidential tips to billionaire hedge-fund manager Raj Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs as well as nonpublic details about the bank’s financial results for the second and fourth quarters of 2008.

A three-judge panel of the federal appeals court in Manhattan today rejected an argument by defense lawyer Seth Waxman that the conviction should be tossed and Gupta granted a new trial because U.S. District Judge Jed Rakoff erred by admitting statements of a co-conspirator recorded in wiretapped telephone conversations in which Gupta wasn’t a participant.

Gupta is the highest profile executive convicted since federal authorities in New York began a nationwide crackdown on insider trading at hedge funds in 2007. To date, the office of Manhattan U.S. Attorney Preet Bharara has filed insider-trading charges against 83 people and four entities -- all of them units of SAC Capital Advisors LP -- in its investigation of fund managers, company insiders and expert-networking firms. The U.S. has won 79 convictions, mostly through guilty pleas. No one charged in the probe has been acquitted of insider trading.

Passed Information

The jury convicted Gupta of twice passing information about Goldman Sachs to Galleon Group LLC co-founder Rajaratnam -- once on Sept. 23, 2008, and again on Oct. 23, 2008. Waxman said the government should have been barred from using as evidence two court-authorized wiretaps of phone calls that didn’t involve Gupta.

In one call intercepted by agents of the Federal Bureau of Investigation, Rajaratnam told David Lau, a Galleon trader in Singapore, that he had received a tip from someone on Goldman Sachs’s board. Gupta argued it shouldn’t have been part of his trial.

“I heard yesterday from someone who’s on the board of Goldman Sachs that they’re going to lose $2 a share, the market has them making $2.50,” Rajaratnam said on the call. “I’m going to whack it.”

‘No Error’

The appeals court disagreed. “We see no error in the district court’s finding that Rajaratnam’s statements to Lau, an important colleague and subordinate who had the ability to execute further trades in Galleon,” the appeals court said.

“Gupta’s contentions provide no basis for overturning the district court’s finding that Rajaratnam’s statements to Lau were in furtherance of the insider-trading, loss-avoidance conspiracy of which Gupta was a member and by which Gupta sought to profit, and thus were admissible,” the court said.

“We’re very disappointed in today’s decision,” Waxman said in an interview. He said his client is entitled to a new trial and he is reviewing the opinion “with an eye toward further review.”

Rakoff sentenced Gupta to two years in prison and ordered him to pay a $5 million fine and $6.2 million in restitution. Gupta was allowed to remain free pending appeal while he challenged his conviction.

The case is U.S. v. Gupta, 12-4448, U.S. Court of Appeals for the Second Circuit (Manhattan).

To contact the reporter on this story: Patricia Hurtado in Federal Court in Manhattan at

pathurtado@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Mary Romano, Andrew Dunn

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