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June 20, 2012

Interesting commentary on upcoming Gupta sentencing for insider trading

Writing at Forbes, Richard Levick has this interesting new commentary headlined "The Sentencing of Rajat Gupta: Why It Matters." Here is how it begins:

Here’s a quaint news item from 1987 about how a certain Ivan F. Boesky, one of the world’s most powerful speculators and symbol de jour of Wall Street greed, was sentenced to three years in prison for insider trading-related violations.  It was one of the longest jail terms ever imposed in such a case and, apparently, a source of satisfaction to then-U.S. Attorney Rudolph Giuliani.

Twenty-five years later, we have hedge fund bigwig Raj Rajaratnam setting a new record as he serves an 11-year sentence for similar misdeeds.  Maybe the lesson is that you’re better off getting caught committing financial crimes in prosperous times.  Maybe it’s that persistent violations over decades wear down public patience, accelerating demand for ever more severe punishments that, it’s fancied, will better deter future wrongdoers.

In any event, last week’s conviction of Rajat Gupta for leaking insider information to Rajaratnam has naturally generated much discussion about how the retired head of McKinsey & Company and former Goldman Sachs board member will fare when Judge Jed Rakoff of the Federal District Court in Manhattan passes sentence in October. (Gupta was convicted on one count of conspiracy and three counts of securities fraud.)

Yet the discussion is more than just an odds-maker’s game. Gupta’s ultimate fate raises substantive issues that speak to public perception as well as the narrower considerations that drive judges, influence the future actions of enforcement officials, and impact markets.

June 20, 2012 at 12:18 AM | Permalink


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The Boesky precedent is fascinating, because his three-year sentence was considered pretty tough medicine at the time.

I have trouble imagining the white collar crime for which anything more than five years is justified, unless the defendant presents an ongoing risk to society, which Gupta does not. But he probably has about the most sympathetic judge imaginable, before whom to argue for a below-guidelines sentence.

Congress has continually ratcheted up sentences in this area without any serious analysis. A lot of it is really just therapeutic legislating: it allows Members and their constituents to feel satisfied that they have "done something" about a problem, even though they have done nothing.

Posted by: Marc Shepherd | Jun 20, 2012 12:29:28 PM

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