The memos submitted by the government and defence lawyers for the former Goldman Sachs director Rajat K Gupta present sharply contrasting positions regarding how the court should punish the highest corporate executive caught in the crackdown on insider trading.
In its filing to the United States District Court judge Jed S Rakoff, the government says Gupta's insider trading and conspiracy were "shocking" and his "crimes are extraordinarily serious and damaging to the capital markets."
On the flip side, the defence draws on more than 400 letters submitted to the court in support of Gupta, the former head of McKinsey & Company, to offer a picture of a generous humanitarian and family man in support the argument that the "convictions in this case represent an utter aberration."
The contrast becomes clearer when each side presents its view on the appropriate sentence. The government backs the recommendation of the federal sentencing guidelines for a prison term of 97 to 121 months, which would be among the longest sentences given for insider trading. Mr. Gupta asks for probation and a "rigorous and lengthy program of community service" that would include "a less orthodox but innovative proposal" to work in Rwanda on a health programme to combat HIV
In other words, prosecutors want him to wear the drab khaki clothing issued by the federal Bureau of Prisons for the next few years, while Gupta would like to become the equivalent of a Peace Corps volunteer.
The starting point in a federal prosecution is the calculation required by the sentencing guidelines. The main component is the amount of the gain from insider trading. The presentence investigation report prepared by the United States Probation Office calculated that amount at approximately $11.5 million, which has the effect of adding eight to 10 years to the recommended sentence.
Gupta disputes that amount, arguing that the court should use only a small portion of the gains attributable to what Raj Rajaratnam — the former head of the Galleon Group hedge fund who received tips from Gupta — directly realised from the trading. Under this analysis, the tipping resulted in a profit of only about $350,000 for Rajaratnam, producing a recommended sentence of 41 to 51 months.
Judge Rakoff's first task will be to determine the amount of the gain that will be used to calculate the recommended sentence under the guidelines. And the defence memorandum is quick to quote the judge's words in another case when he criticised the gain analysis for playing such a significant role that appears contrary to "elementary notions of justice or even common sense."
So don't be surprised if Judge Rakoff, who is scheduled to sentence Gupta on Wednesday, starts out at a much lower recommended sentence than what the government wants. That means we are unlikely to see a prison term close to the 11 years that Rajaratnam received from a different judge for his more extensive insider trading that resulted in an estimated gain of $63 million.
Judge Rakoff has also shown a tendency in recent insider trading cases to give a prison term below the sentencing guidelines recommendation.
For example, he gave Winifred Jiau, a consultant for expert network firm Primary Global, a sentence of four years for tipping despite the recommendation of prosecutors of a 10-year prison term. James Fleishman, who worked for Primary Global, received 30 months even though the government recommended the guidelines maximum of nine years in prison.
While that is certainly heartening for Gupta, it should not be read as meaning Judge Rakoff will shy away from meting out a prison term. Despite the fact that Gupta did not benefit personally from the tipping, his position as a director is one of the most important in corporate America. Moreover, the evidence at trial showed that he was hardly reluctant about revealing confidential information learned from Goldman, including calling Rajaratnam within minutes of a board meeting.
Gupta's sentencing memorandum by his defence team walks a fine line by offering up his extensive charitable work as a basis for a lighter punishment while avoiding something judges always like to see: a measure of contrition for the misconduct. The defence at trial disputed whether Gupta actually tipped Rajaratnam, and avoids acknowledging that he violated the insider trading laws.
That posture protects Gupta's position in case the convictions were reversed and a retrial ordered. It also means he is unlikely to tell the court that he accepts responsibility for what he was convicted of doing.
©2012 The New York Times News Service
