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October 9, 2012

Gearing up for high-profile sentencing of high-profile insider trading defendant

MI-BR721_GUPTA_NS_20121009182408The Wall Street Journal has this notable new article, headlined "In Gupta Sentencing, a Judgment Call," about a high-profile federal sentencing of a high-profile white-collar defendant slated for later this month. Here is how the piece gets started:

Former Goldman Sachs Group Inc. director Rajat Gupta is the highest-profile of more than 70 defendants convicted of insider trading in New York federal court in the past three years.

But this month he will likely receive a more lenient sentence than the 11-year-prison term given to Raj Rajaratnam, to whom Mr. Gupta provided his illegal leaks, legal experts say.

The sentence may have reverberations beyond the 63-year-old Mr. Gupta, a former chief of consulting giant McKinsey & Co. It will be widely watched in executive suites nationwide because it will be among the first handed down to a major corporate figure in the recent insider-trading crackdown. Previous sentences have largely involved traders, lawyers, lower-rung corporate employees and others.

Mr. Gupta, who was convicted in June of three counts of securities fraud relating to tips about Goldman and one count of conspiracy, didn't trade or profit directly from his illegal tips. Before the conviction, he had a long and stellar career in corporate America and philanthropy.

All this will be balanced against the nature of the crimes and the need to discourage others from similar offenses when U.S. District Judge Jed Rakoff hands down his sentence, scheduled for Oct. 24. Judge Rakoff often imposes sentences further below federal sentencing guidelines than some other judges do, according to a Wall Street Journal analysis.

"It's tough for a judge, because on the one hand, you know you are supposed to deter others to make a statement," said Peter Zeidenberg, a former prosecutor and now a white-collar defense attorney in Washington. "On the other hand, you should be looking at individuals as individuals and not as a poster board."

Federal guidelines could dictate a sentencing range for Mr. Gupta of up to 10 years, if Judge Rakoff agrees that the tips produced an amount approaching what prosecutors said in trial exhibits were at least $10 million in illicit profits earned and losses avoided by the Galleon Group, Mr. Rajaratnam's hedge fund. That would include extra time if Judge Rakoff found Mr. Gupta abused a position of trust as a corporate board member.

The range also could be less if the judge determines the illegal gains were less than $7 million, or based on other factors the defense might put forward. Judges must calculate and consider the guidelines at sentencing but needn't impose them. Judge Rakoff in the past has criticized them as "a mirage of something that can be measured."

Since 2010, Judge Rakoff has imposed an average sentence of 21 months on insider-trading defendants who didn't cooperate with prosecutors—about 38% below the guideline minimum, according to the Journal analysis.

By comparison, U.S. District Judge Richard Sullivan issued seven sentences in that period averaging 6.3% below the guideline minimum. U.S. District Judge Paul Crotty issued three sentences at 20.3% less than the minimum.

And former U.S. District Judge Richard Holwell issued three at 39% under the minimum. Mr. Holwell's 11-year sentence for Mr. Rajaratnam was 100 months below the minimum; he gave 30 months to Danielle Chiesi, Mr. Rajaratnam's co-conspirator, seven months under her range.

October 9, 2012 at 10:34 PM | Permalink

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