So he’s off the hook for his work at P&G, with the lesson perhaps being that people will believe much more nefarious things about Goldman than they will about Procter & Gamble. More amazingly, the jury decided that he did not leak confidential information from the 2007 Goldman audit committee call that he seems to have conferenced Raj Rajaratnam into; perhaps they bought the defense that he was having an unrelated conversation with Rajaratnam during the entire duration of the Goldman call.
On the other hand, he was convicted of leaking Warren Buffett’s investment in Goldman in September 2008, which prosecutors claim made Rajaratnam $840,000 in illegal profits, and of leaking Goldman’s Q3 results in October 2008, which allowed Rajaratnam to avoid “several million dollars” in losses by selling 150,000 shares before those results were announced. You can argue – and the lawyers will! – over how much that was, but if you take the dumb math of (1) Raj sold at around $100 (actually ranging from $97.74 to $102.17) on October 24 and (2) GS closed at $76 on December 16, when Q3 results were announced,* then Raj saved some $3.6 million on that trade. (The government thinks it’s $3.8mm.) The acquitted trades were smaller: the March board call seems to have made Rajaratnam about $700K (350,000 shares with a $2 one-day pop on the news), while Raj’s shorts on P&G made him about $470K.
I suppose it’s nice that the jury threw him a bone on a few counts, and it might even help his bottom line. As we’ve discussed, the main thing that factors in to his sentence is how much money was involved. For Raj, not for him. There is a way in which this makes sense for certain financial crimes: for Allen Stanford and Bernie Madoff, each dollar that they made really was stolen from widows and orphans, and the bigger the theft the more harm they caused. For Raj Rajaratnam, the harm is more attenuated – nobody lost their life’s savings because they sold GS shares at market prices to him rather than to someone else – but there’s still some reason for a correspondence between size of profits and size of jail term, at least for deterrence purposes. I wouldn’t spend a night in jail to make $10, but for $10 million, I’d think about it – but not 11 years in jail. That theory breaks down for tippers like Gupta, who I guess the jury concluded knew that Rajaratnam was trading on his tips, but who could hardly have known how much he was trading. Nonetheless his time is going to be determined primarily by Rajaratnam’s trading decisions, rather than anything that he did or didn’t do.
That said, the sentencing guidelines have cutoffs at $2.5mm and $7mm amount of loss; depending on how the court does the math on the counts he was convicted of, the fact that he got off on $1.2mm-ish of charges might save him a year or so on those calculations – moving him to more like 4-7 years than 6-8 on my fake provider of non-legal non-advice. More importantly, though, take that calculator with a lot of salt: as Matthew Kluger’s record-setting experience shows, the judge matters at least as much as the crime, and Gupta’s judge, Jed Rakoff, feels less bound by the sentencing guidelines than do many of his peers. Given Gupta’s relatively distant involvement in the money-making bits of his crimes, and his charitable activities and general air of upstandingness, if I were a betting man I’d be taking the under.
One last thing. I know Preet Bharara is required to make gross gloaty pronouncements like this, but still, does it not make your skin crawl?
“Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell,” Preet Bharara, the United States attorney in Manhattan said in a statement.
Rajat Gupta Convicted of Insider Trading [DealBook]
Rajat Gupta Convicted Of Insider Trading By U.S. Jury [Bloomberg]
* Though it was up that day, whatever.