Gupta’s Appeal Could Blacken His Name Instead of Clearing It

If he prevails, Rajat Gupta could become Wall Street’s ‘O.J. Simpson’

Of all the Wall Street players U.S. attorney Preet Bahara has nabbed for insider trading in the last four years, Rajat Gupta has got to be the most improbable.

He’s not a hedge fund operator, investment banker, equity trader, research analyst or expert network consultant. Instead, Raj Gupta has for years been a distinguished member of America’s business and philanthropic elite, a native of India who rose from orphanhood to the top of McKinsey & Co. and then onto the boards of Goldman Sachs, Procter & Gamble, American Airlines, the Rockefeller Foundation and the Bill & Melinda Gates Foundation. He and his wife Anita attended President Obama’s first state dinner.

Gupta’s two-year sentence, handed down last week, was well below the 20-year maximum term the 63 year-old was facing. He was convicted of securities fraud for tipping Galleon hedge fund manager Raj Rajaratnam to Warren Buffet’s $5 billion investment in Goldman at the height of the financial crisis and Goldman’s first quarterly loss as a public company. Gupta was also fined $5 million, while Rajaratnam is now serving an 11-year sentence for trading on those two insider tips and lots of other material, non-public information obtained from illegal sources.

Explaining Gupta’s light prison sentence, Manhattan District Court Judge Jed Rakoff said that “the court has never encountered a defendant with such extraordinary devotion to individual human beings in their times of need.” The judge’s compassion was also undoubtedly elicited by the 400 letters he received from luminaries like Bill Gates, Kofi Annan and Deepak Chopra urging leniency for Gupta. The government of Rwanda even suggested to the court that Gupta perform community service there in lieu of being incarcerated in the U.S.

The insider trading case against Rajat Gupta was completely circumstantial, although the indirect evidence was “overwhelming” according to Judge Rakoff. Despite the extensive use of wiretaps by the prosecution, there was not a single telephone conversation between Gupta and Rajaratnam in which an insider tip was passed. There were in fact taped telephone conversations between them, at least one right after an important Goldman board meeting, and Rajaratnam reportedly bragged to his Galleon colleagues on other recorded calls about having an inside source at Goldman. When all was said and done, though, the evidence presented at trial against Gupta was entirely indirect and a jury nevertheless found him guilty beyond a reasonable doubt.

When all was said and done, though, the evidence presented at trial against Gupta was entirely indirect and a jury nevertheless found him guilty beyond a reasonable doubt.

To this day, Rajat Gupta maintains his innocence, although his attorney, Gary Naftalis, did tell the court at the sentencing that Gupta’s crimes “are a total aberration in an otherwise laudatory life.” Judge Rakoff agreed, pointing out that “history is full of examples of good men who did bad things.”

Now, here’s the rub.

Rajat Gupta fully intends to appeal his conviction on the ground that the evidence obtained against him was illegal. The alleged illegality stems from the fact that the prosecutors never told the district judge who granted the wiretap warrant against Rajaratnam of an ongoing SEC investigation which apparently could have dissuaded him from issuing the warrant in the first place. Under a 1968 federal statute, warrants for electronic surveillance are not supposed to be issued in criminal investigations unless all conventional fact-finding techniques have been employed by the government and failed.

If Gupta succeeds in invalidating the incriminating wiretaps, the government will be forced to either give up the case against him or re-try him without the recordings and the documents and testimony to which they gave rise. Either way, his exoneration would not be due to his innocence but to the duplicity or negligence of the government, in which case Raj Gupta’s image as a model citizen lured into Gomorrah by a baby-faced Beelzebub would instantly be re-branded as another greedy Wall Street plutocrat who got caught with his hand in the cookie jar and then figured out how to beat the system.