If, Just Hypothetically, Rajat Gupta Was Insider Trading, How Bad Would That Be?

I’ve occasionally entertained myself in the last few weeks by building a fantasy-universe defense for Rajat Gupta in which he was a well-meaning but somewhat bumbling director trying to raise money for Goldman and socialize with his buddy Raj Rajaratnam but never in his wildest dreams considering giving Rajaratnam illegal insider tips in exchange for “some modest benefit” to himself. That doesn’t seem to be going well, does it? If you’re rooting for the defense, you can’t be thrilled by the sheer number of board-meeting/call-to-Raj/profitable-trade sequences, the evidence of possible financial benefits to Gupta, and most disappointingly of all the fact that Gupta is not going to get up on the stand and explain how this was all a big misunderstanding.

So let’s overcorrect and declare him guilty and move right into sentencing. A while back I put up a chart that used some basic inputs and rudimentary knowledge of the sentencing guidelines to predict how insider traders would be sentenced, and it worked okay. In particular, it gave Raj Rajaratnam just over 10 years in jail; a judge gave him 11.*

Since then there have been more Galleon convictions and sentences, none of which are wildly out of line with predictions. There was also Garett Bauer and Matthew Kluger, the “thuggish” insider trader who got a record-setting sentence for their 17-year, $37mm insider trading scheme. Here’s an update of the chart for Rajat Gupta’s consideration:

The lines are rudimentary model predictions, based on (1) whether or not you’re in the financial industry (including being a director of a public company, so Gupta qualifies), (2) whether or not you went to trial (Gupta did), and (3) how much money you made. (As discussed previously, the law about who gets how much time for insider trading is more of a set of recommendations and guesses than an actual “law.”) The dots/diamonds/etc. are actual sentences for Galleon-related defendants who pled, Galleon-related defendants who went to trial, the Kluger defendants in New Jersey, and a hypothesized 6-to-8-or-so-year guess for Gupta.

This chart is a bit more scattered than the last one. There are a couple of reasons for that: one, as more Galleon insiders who either went to trial or cooperated get sentenced, there’s more dispersion, since going to trial is Bad and wearing a wire is Good. Second, the New Jersey case skews the numbers, reminding you that thuggishness and simple difference among judges matters – perhaps Kluger’s New Jersey judge just wanted to get into the record books and so gave him more time for a guilty plea to a $37mm scheme than Rajaratnam got for going to trial on a $63 million scheme.

But there’s also the fact that the “how much did you steal” axis, which seems to be the most important thing in determining the sentence, is a slippery beast. For example, Kluger got 12 years and Bauer got 9 even though:

Alan Zegas, Kluger’s attorney, argued that his client deserved far less time because he made less than $1 million. … Bauer made about $32 million in illicit profits in the scheme’s last four years. Zegas said Kluger believed the three men were splitting the profit equally, and his client had no idea that Bauer made 30 times more than he did.

The third man mentioned there, Kenneth Robinson, got 2.5 years because he wore a wire. (So did Gautham Shankar, the zero among the Galleon figures.) How much they each got, though, doesn’t seem to be that important – the question is how much the insider trading scheme made, all in.

This was actually an issue in Raj Rajaratnam’s sentencing: he argued that he should only be held accountable for his 2-and-20 share on Galleon’s profits, not the full ~$63mm that Galleon made on his trading. The judge disagreed, writing about the relevant federal sentencing guidelines:

It makes far more sense to interpret the phrase “the total increase in value realized through trading in securities by the defendant and persons acting in concert with the defendant or to whom the defendant provided inside information,” USSG § 2B1.4 cmt. background (emphasis added), as referring to the increase in value realized by the defendant or others’ trading vel non rather than the value realized by the defendant himself from that trading. That interpretation would include gains from trading by “persons . . . to whom the defendant provided inside information” and thereby hold tippers responsible for gains by their tippees.

So construed, the commentary is indifferent to whether Rajaratnam, Galleon Management L.P., or Galleon investors took home that increase in value. Rather, the relevant number is the size of the increase, namely, the increase in the price of a company’s shares from the time that Rajaratnam purchased them to the time that the public learned the inside information.

Note the “and thereby hold tippers responsible for gains by their tippees.” There is some dispute about what Gupta got out of his relationship with Rajaratnam that was worth breaking the law for, with some possibilities including over-valuing Gupta’s investment in Galleon and the general networking benefits that come from befriending a rich hedge fund manager. Those things matter because Gupta can only be guilty of illegal insider trading if he tipped Rajaratnam to get some benefit for himself – pure charity or accident, weirdly, don’t count. (Friendship … sort of does?) But if he is guilty, what matters is not what he made for his information, but what Rajaratnam made trading on it. The government’s expert thinks that’s $10mm or so.

If you buy that – you don’t have to, but it’s the same expert who testified against Rajaratnam about the same facts, and the judge there bought it – then that makes Gupta a pretty big-time insider trader; the dumb math gets him 8 years in jail or so. Of course other facts matter, both for calculating the sentence recommended by the federal sentencing guidelines (e.g. unlike Rajaratnam, Gupta wasn’t the ringleader of a conspiracy) and for guessing what the judge will actually do (where both Gupta’s charitable record and the fact that, in the real world, he didn’t make $10mm might actually matter). So this shouldn’t be taken as too serious a prediction. At the same time, though, the chart’s done pretty well so far.

* And the difference is my fault, not the chart’s: I was using a $40mm-ish amount of profit from Rajaratnam’s trading; the judge found $63mm, which puts his 11 year sentence right on the predicted line.

(hidden for your protection)
Show all comments

118 Responses to “If, Just Hypothetically, Rajat Gupta Was Insider Trading, How Bad Would That Be?”

  1. Guest says:

    Allen Stanford and Bernie Madoff data points missing. Does not compute.


    • fittin in says:

      ummm. the program that is run is called "insider trading" not "ponzi". malfunction i suppose. you're decommissioned.

    • Guest says:

      In the over-corrected event that Mr. Gupta is convicted, I think you should send multiple unsolicited letters to Judge Rakoff posing questions about his adherence to the sentencing guidelines, and perhaps disagreeing with sentencing Mr. Gupta for insider trading rather than theft.

  2. anonymous says:

    So you're telling us that on that day, due to technical difficulties, buyers were pushing the same button again and again trying to buy Facebook shares? And they didn't know what was happening? You said due to "technical difficulties"? Could "technical difficulties" also lead one to, say, dial the same telephone number repeatedly?

    — Gupta's defense attorney, working an angle

  3. jttuck says:

    Bauer didnt make 32million!! Its an accounting joke the feds use with these cases. They dont consider the LOSSES you have. I saw bauer speak in person and while I dont think he was totally honest in everything, the dude did pony up to the numbers that seemed pretty legit. He said they were throwing 10-50k trades tops. He said that he was trading 98% on his own book and the feds counted alot of his own non related trades towards thats number. You cant say he MADE 32 MILLION if he lost 30 million. its stupid.

  4. JohnnyCanes says:

    Where were you eight years ago? Your chart would have shaved 6 months off for me.

    – Martha Stewart

  5. gym says:

    Is "rudimentary knowledge of the sentencing guidelines to predict how insider traders would be sentenced" part of orientation at GS?

  6. Hansel says:

    Matt. Matt would be another person who's a hero. The graphs that he's created over the years – I don't really read them, but the fact that he's making it, I respect that

  7. Guest says:

    If I were to bother to italicize words, I would make sure that the word in question isn't grammatically incorrect.

  8. guest says:

    skipped the post, went straight to the comments, and no regrets.

  9. Far Wur says:

    Hey Matt,

    If we might be so bold as to say, scrue the math, if they find Gupta guilty, he should get the full boat for each fraud (20 years X 5 counts) plus the five for conspiracy, for 105 years total, with possible parole at the 60% mark.

    This fool sued to face criminal charges. He could have settled an administrative procedure from the SEC, instead he wanted his day in court.

    Well, he's getting it right now. He deserves about zero leniency if he's found guilty. It was his big swinging deeck gamble that got him there.

  10. The graph is representing in this hubs very beautifully….

  11. Banjo says:

    We’ve airrevd at the end of the line and I have what I need!

  12. ejJWNm A big thank you for your post.Much thanks again. Really Cool.

  13. Major thanks for the blog article. Fantastic.

  14. Wow, great blog article.Really thank you! Great.

  15. A big thank you for your blog article.Really looking forward to read more. Cool.

  16. Im obliged for the article post. Will read on…

  17. I think this is a real great article post.Thanks Again. Really Cool.

  18. Very good post.Really looking forward to read more. Great.

  19. Sasha Grey says:

    I really liked your blog post.Thanks Again. Really Great.

  20. Really enjoyed this blog post.Much thanks again. Will read on…

  21. facebook says:

    Fantastic article post.Really looking forward to read more.

  22. Very neat blog article.Thanks Again. Really Great.

  23. A round of applause for your blog.Much thanks again. Really Cool.

  24. subscribers says:

    Fantastic post.Thanks Again. Awesome.

  25. I really liked your blog post.Much thanks again. Really Cool.

  26. Looking forward to reading more. Great article post.Much thanks again. Great.

  27. Very good article post.Really thank you! Great.

  28. Thanks again for the blog article.Thanks Again. Awesome.

  29. I value the article post.Really looking forward to read more. Want more.

  30. Thanks so much for the article.Really thank you!

  31. Im thankful for the article.Thanks Again. Much obliged.

  32. Im grateful for the blog article.Really looking forward to read more.

  33. Mr. Palmer is so totally wrong on all this, other than the initial inquiry from the expecting lady.

  34. Great article.Much thanks again. Really Great.

  35. Thanks a lot for the post. Want more.

  36. Awesome blog post.Thanks Again. Keep writing.

  37. Hey, thanks for the blog article.Thanks Again. Really Great.

  38. Hey, thanks for the post.Thanks Again. Great.

  39. Thanks again for the article post.Much thanks again.

  40. I think this is a real great blog.Thanks Again. Keep writing.

  41. Define, where necessary, any terms whose meaning is different or more specific than their home. They might include fire, earthquake, tornado and theft, but not include flood or hurricane, for example. Our county, Pasco, is renowned for having sinkholes and Citizens will have a low credit score or problems on your rental property application. {||||

  42. Lacy Rondon says:

    exactly where are the 1991 saturn parts? In which would be the most complete listing of auto aspect trade indicates?

  43. If you do not have a standing bank account. A building described on the road, you can do to try to reduce your living expenses until you can never know when danger can strike and leave you emptying your pockets. Property taxes we are already policyholders with them and our rates went sky high. {||||

  44. Check Here says:

    Which is just awesome!

  45. Good web web page. Lots of helpful information the /I’m sending it to some buddies ans additionally sharing in delectable. And obviously, thank you in your sweat!

  46. Sanchez said he knew he would need offseason surgery even before the Giants completed the July 29 trade. And theres no blaming the Pirates for subterfuge; the Giants medical staff conducted its own examination of Sanchez because the trade was completed after a three-game series at San Francisco in which he sat out all three games.

  47. Have you ever thought about adding a little bit more than just your articles? I mean, what you say is fundamental and all. Nevertheless just imagine if you added some great pictures or video clips to give your posts more, “pop”! Your content is excellent but with images and videos, this website could certainly be one of the most beneficial in its niche. Wonderful blog!

  48. magazine says:

    Great, thanks for sharing this article.Really looking forward to read more. Keep writing.

  49. I really enjoy the blog article. Much obliged.

  50. Thanks for sharing superb informations. Your website is so cool. I am impressed by the details that you have on this website. It reveals how nicely you perceive this subject. Bookmarked this web page, will come back for more articles. You, my pal, ROCK! I found just the info I already searched everywhere and just couldn’t come across. What a great site.

  51. Thank you for sharing superb informations. Your web-site is fantastically cool. I’m impressed by the details that you’ve by this blog. It reveals how nicely you perceive this subject. Bookmarked this web side, will come backside used for more articles. You, my friend, ROCK! I originate in basic terms the info I previously searched all above the categorize and simply could not extend across. What a vast web-site.

  52. Wow, great post.Really thank you! Awesome.

  53. ebikes says:

    To make a nice vehicle to make a quick run to a neighborhood convenience store. A normal EB would consume fuel at an average rate of 100-150 watts of electrical energy compared to gasoline consumption.

  54. Not a good deal of a unhealthy clause, made it materialize compel several your time and energy to obtain into account it?

  55. Angry Birds says:

    De Krim Hardenberg

  56. Thanks for the unique tips shared on this website. I have seen that many insurance firms offer shoppers generous discount rates if they prefer to insure more and more cars together. A significant amount of households have got several cars or trucks these days, particularly people with more aged teenage children still living at home, as well as the savings on policies could soon begin. So it makes sense to look for a good deal.

  57. I found your blog’s link put up by a friend of mine on Facebook. Thank you for putting useful info on the net. It’s hard to get this stuff nowadays.

  58. Baylion reported on September 20, 2012

  59. Raye Junge says:

    The printing firms of holiday themed stationery have separate categories for different seasons and holidays. We have to decide on the design series that fits your needs and ideas for the printing of the stationery. Once the design is fixed on, you then have to choose the greetings card and texture of the paper you wish to use for the card. It is always better to choose paper that has a rich look as it tends to make the recipient feel happy as you had spent so substantially for him. If required, you could also choose to have your return address printed on the back envelope flap for the convenience of the recipient. The holiday card gets a better look if you also get a matching envelope lining for the card. This Astra Resources Cambodia also enhances the holiday spirit with both a holiday spirited card and envelope.

  60. While making your holiday greeting card, you could also include your logo and a picture of your department, company or organization for an extra personal touch to the card. So it is always better to create a logo for your company using vector graphics so that the logo can be resized both big and small for the convenience for printing. This logo can also be used to print holiday themed letterheads and enterprise cards for the holiday season. If required, you could also add a holiday message Astra Resources Cambodia to give the personal touch to the stationery.

  61. unwell pilot ur airplane baby.. if u no wat i mean

  62. Hi there very nice site!! Man .. Excellent .. Amazing .. I’ll bookmark your site and take the feeds also…I am glad to seek out numerous useful information right here within the post, we’d like develop more strategies on this regard, thanks for sharing.

  63. Terrific function! This is certainly the kind of information that must be shared across the net. Shame on Google for not positioning this publish higher! Come on in excess of and visit my web site . Thanks =)

  64. Good movie. Is there a way that you could add towards your web web-site a discuss backlink to facebook to ensure my “friends” could see this? I’d love to spread the word.

  65. This will be a great blog, might you be involved in doing an interview regarding just how you developed it? If so e-mail me!

  66. Im grateful for the blog post.Much thanks again. Awesome.

  67. The word that arrived to my thoughts was “Why?”

  68. Thanks a lot for the blog article.Really thank you!

  69. I just moved from Colorado to Michigan. Certainly, MI does have some nice breweries like Bells and Founders but there is some thing missing. Its likely the lack of altitude

  70. Are you looking to buy an electric bicycle gives you advantage of a conventional bicycle and swiftly move between multi-lane paths. When you buy an ebikes on your own does not take away from the emissions from coal-fired power plants, which provide the electricity for the environment?

  71. Thanks so much for the blog article.Much thanks again. Fantastic.

  72. wypadekuk says:

    Sadly I cannot conform to that. Nonetheless I all the calculate tolerate several personnel’ opinions. That’s especially sought after although you run your peculiar blog. I will live subsequent your blog with fine interest.

  73. advoyant says:

    Im grateful for the post.Thanks Again. Keep writing.

  74. I am so grateful for your article.Much thanks again. Great.

  75. Heya to each of us. I’m coming from Greece and i also create a fresh blog site. Have A Look At my internet and told me your personal opinion. There Can Be Found many ideas and knowledge about my job role. It Is Really for free 100% and without need of registrator. Gives Thanks To each and every that may go to see my brand-new world-wide-web. This Will Help my work. | όλες οι προσφορές |

  76. Then you will need to be a pretty very good photographer.

  77. I truly appreciate this article. Really Cool.

  78. twbhbbvzp says:

    A person laborer operates the hammer along with the [url=]louis vuitton outlet[/url] second helps by keeping the hammer either on his shoulders or supported in his arms. Both equally guys can use their collective body weight to push the bit in to the workface. This method is widely often called horizontal jack hammering.
    These kinds of purses and handbags became pricey these days easily mainly because goods makers realize their own personal significance and need. They offer the item to get genuinely critical advertising selling prices however in addition, there are various below wholesale regions from in which you could get reduced at [url=]louis vuitton outlet[/url] wholesale costs clutches. We ought to not necessarily choose for your concept of lower as this normal statement is moreover over it plus they inexpensive at wholesale selling prices totes moreover aid to create identical layout declaration considering the fact that men and women expensive carriers carry out..
    The winds are formed when the inland Mojave and Sonoran Deserts are cold, ordinarily from October as a result of March. Recognized as downslope winds, air is drawn throughout the mountains down to the Los angeles Basin, Orange County and northern San Diego County. Winds access speeds of 70 mph, which qualifies as hurricane pressure.
    Appear for an help property. The most effective location to get started on seeking is in your town. This could make it attainable in your case and also your family to visit generally. If the drawing is nice plenty of to show, there are methods for you to graffiti officially. Investigating these will be the instructors and guides for the own drawings. A lot of urban places show some kinds of graffiti tags where one can [url=]louis vuitton outlet[/url] observe the artist’s drawing techniques, shading and colors made use of.
    Very quickly at all your ball and chain will know very little about what’s likely on inside your head and concurrently sense which you you should not treatment to understand what is likely on inside hers. This really is an incredibly weighty element when it depends upon identifying irrespective of whether the relationship’s over or if you can find still one thing there to operate for. If she still feels that there is motive to carry on with all the relationship, you’re almost certainly not making an attempt very difficult sufficient on this space.
    Nevertheless, these flaws are very minimum and are very substantially unnoticeable. Additionally you require to produce specific the replica you will be attaining the truth is was imitated from an first. This is as there are replicas that are not copied from originals and so are just branded with designer labels..
    Considerations as well as buying straightner: You would like to be exceptionally diligent during enough time you choose the good hair straightner available for you personally personally. You concept need to definitely make use of the adhering to details:Truly worth: Don aquire a straightener which can be pricey. About the other hand to decide on a coach that’s Great curly hair sort: Select the flat iron which may be most effective for ones haired.

  79. Cox Mesa says:

    I definitely appreciate this short article.Considerably thanks once again.

  80. loans says:

    Awesome article post.Really thank you! Great.

  81. casino says:

    Wonderful content. the situation is exhaustively mentioned, got the very best method to obtain info etcetera. If a lot more of like word options, I am looking towards which.

  82. stock wheels says:

    Thanks for sharing, this is a fantastic blog post.Really thank you! Cool.

  83. You make a great point. Got some nice info here. I think that if more people thought about it that way, they’d have a better time get the hang ofing the issue.

  84. Muchos Gracias for your article post.Really thank you! Want more.

  85. hosting says:

    This is one awesome post.Really thank you! Fantastic.

  86. I am so grateful for your article.Thanks Again. Really Cool.

  87. A big thank you for your blog.Thanks Again. Cool.

  88. Thanks incredibly a lot for the images, I’m a canine lover and I just appreciate the cute puppy encounter.

  89. diety says:

    Address you I got through my good friend, who also to this day Me gracious for your. I became seeking web pages about this issue for a long time, yet difficult to do appreciated in my opinion exactly like you!

  90. Really appreciate you sharing this article.Really thank you! Want more.

  91. Really appreciate you sharing this blog post.Really looking forward to read more. Will read on…

  92. Pealis says:

    Wow that was odd. I just wrote an extremely long comment but after I clickedsubmit my comment didn’t appear. Grrrr… well I’m not writing all that over again.

  93. Great, thanks for sharing this blog article. Great.

  94. A big thank you for your article post.Really looking forward to read more. Fantastic.

  95. Good write-up, I am regular visitor of one’s website, maintain up the nice operate, and It is going to be a regular visitor for a lengthy time.

  96. Hey! Do you know if they make any plugins to assist with Search Engine Optimization? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good gains. If you know of any please share. Cheers!

  97. wypadek uk says:

    Great work! This is the type of information that are supposed to be shared roughly the web. Ignominy resting on the get engines for now not positioning this situate positive upper! Extend on above and visit my website . Recognition =)

  98. One other thing to point out is that an online business administration training is designed for individuals to be able to effortlessly proceed to bachelors degree education. The 90 credit certification meets the lower bachelor diploma requirements so when you earn your current associate of arts in BA online, you will get access to the latest technologies on this field. Some reasons why students need to get their associate degree in business is because they may be interested in this area and want to find the general knowledge necessary in advance of jumping in to a bachelor diploma program. Thx for the tips you provide in your blog.

  99. It’s really a nice and helpful piece of information. I’m glad that you shared this useful information with us. Please keep us up to date like this. Thanks for sharing.

  100. Very neat article post.Really thank you!

  101. Yeah, I dont get the September thing either. Wasnt it in November before?

  102. I really liked your article.Really thank you! Keep writing.

  103. payday loans says:

    I truly appreciate this blog.Much thanks again. Fantastic.

  104. hlitzqihi says:

    [url=][/url] Doing work from your home affords us sure liberties we will not get as clock-punchers inside the corporate tower. Many periods, I have cranked out sizeable work ahead of the sunlight has arisen, and been awakened by a client’s mid-afternoon call within the transportable phone as I choose a siesta within our hammock. I carry my Blackberry on vacations, log on from wifi-enabled resort rooms while the relatives is asleep, or make biz calls from household celebrations on weekdays.

    [url=]louis vuitton outlet online[/url] Another 8 days of sophistication were being significant chaos. I used to be capable to witness the early phases of college students owning “the embodied practical experience of engaging in purposeful orchestration of modes to build meaning” (Miller 66; italics in primary). College students slipped into character.

    [url=][/url] A home business web site can bring in you a snug residing given you’ve got 1st centered it on correct current market research information. The moment your internet site has long been introduced you happen to be now from the blog progress levels within your site. Through this time it can be imperative you keep post clean weblog entries with related and helpful data to attract visitors to the web page.

    [url=][/url] The online world is extensively noted for offering us a better option in terms of all kinds of various items; and you will frequently uncover anything you want on line for the fraction of its superior avenue selling price. Possibly you’ve got made a decision to invest in your daughter an ankle bracelet for her birthday. Acquiring a spread of such in the majority of offline jewellers would prove to become complicated, otherwise unattainable.

  105. Sorry for the huge review, but I’m really loving the new Zune, and hope this, as well as the excellent reviews some other people have written, will help you decide if it’s the right choice for you.

  106. Boris Gain says:

    very nice post, i undoubtedly adore this wonderful internet site, carry on it

  107. I’m extremely impressed with your writing skills and also with the layout on your blog. Is this a paid theme or did you customize it yourself? Anyway keep up the nice quality writing, it’s rare to see a great blog like this one these days..

  108. Wow that was strange. I just wrote an really long comment but after I clicked submit my comment didnt show up. Grrrr well Im not writing all that over again. Regardless, just wanted to say superb blog!

  109. obviously like your web-site but you need to check the spelling on quite a few of your posts. A number of them are rife with spelling issues and I find it very bothersome to tell the truth nevertheless I’ll surely come back again.

  110. home repair says:

    I cannot thank you enough for the blog.Really thank you! Awesome.

  111. I’m not that much of a internet reader to be honest but your sites really nice, keep it up! I’ll go ahead and bookmark your site to come back later on. All the best