The road Gupta’s lawyers may choose
Rajat Gupta’s conviction shows that federal prosecutors can win an insider trading case based largely on circumstantial evidence. It appears the jury was persuaded by wiretaps. For the two charges that he was acquitted on, the government didn’t present overheard conversations of Raj Rajaratnamdescribing his source of inside information. Gupta was convicted on tips he made to Rajaratnam in September and October 2008 about developments at Goldman. Prosecutors had wiretaps of Rajaratnam describing his source on Goldman’s board, which pointed a finger at Gupta.
The sentence Sentencing is scheduled for October 16 and the focus of the case will shift to his punishment and issues his defence lawyers may introduce on appeal. In recommending prison terms for insider trading, the federal sentencing guidelines focus primarily on financial gains made by a defendant. Gupta didn’t personally trade in Goldman Sachs or P&G shares based on inside information. But by tipping off Rajaratnam, he is responsible for the transactions conducted through Galleon.
By convicting Gupta of conspiracy, prosecutors will probably argue he is responsible for all trading cited in the indictment — which was estimated at trial to have generated for Galleon over $16million in gains or in losses avoided. Prosecutors will seek to add on to the sentence arguing that Gupta “abused a position of trust” leaking information while serving as director of Goldman and P&G. Based on these, sentencing guidelines recommend a sentence of 8 to 10 years. Gupta will argue for a much lower sentence, claiming that acquittal on two counts should mean that any trading gains from transactions related to those charges should be excluded from the sentencing calculation. He’s likely to argue that Rajaratnam made the decision on how much to invest, and so the amount of the gain overstates the harm from the insider tips.
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