NEW YORK (AP) — A former Goldman Sachs and Procter & Gamble Co. board member was sentenced to two years in prison Wednesday, culminating a spectacular fall from grace for a man whose good deeds worldwide brought him leniency after he was convicted of feeding inside information about board dealings to a billionaire hedge fund owner who was his friend.
Rajat Gupta, 63, of Westport, Conn., learned his fate from U.S. District Court Judge Jed Rakoff, who defended the length of the prison term he levied, blasting federal sentencing guidelines that he said called for Gupta to serve at least 6½ years behind bars. He also ordered him to pay a $5 million fine.
Citing information he received under seal, Rakoff said Gupta's crimes may have occurred because Gupta may have "longed to escape the straightjacket of overwhelming responsibility, and had begun to loosen his self-restraint in ways that clouded his judgment."
The Harvard-educated businessman long respected on Wall Street was one of the biggest catches yet for the federal government in its five-year crackdown on insider trading that has so far resulted in 69 convictions.
Gupta was ordered to report to prison on Jan. 8.
Reading from a statement, he said: "The last 18 months have been the most challenging period of my life since I lost my parents as a teenager.
"I regret terribly the impact of this matter on my family, my friends and the institutions that are dear to me. I've lost my reputation I built for a lifetime. The verdict was devastating."
The dealings by Gupta that were highlighted at his spring trial stemmed from his relationship with Sri Lanka-born Raj Rajaratnam. The one-time billionaire hedge fund boss controlled up to $7 billion in accounts, giving him a firm footprint in the financial markets and influence that impressed someone as widely regarded as Gupta.
"His conduct has forever tarnished a once-sterling reputation that took years to cultivate," U.S. Attorney Preet Bharara said after sentencing. "We hope that others who might consider breaking the securities laws will take heed from this sad occasion and choose not to follow in Mr. Gupta's footsteps."
Prosecutors described how Gupta raced to telephone Rajaratnam with stock tips sometimes only minutes after getting them from board conference calls, helping Rajaratnam make more than $11 million in illegal profits for him and his investors. Rajaratnam is serving an 11-year prison sentence after his conviction last year.
The narrower insider trading case against Rajaratnam and his co-conspirators resulted in 26 convictions and was described by Bharara as the biggest insider trading case in history, successful in part because of unprecedented use of wiretaps more familiar to juries at mob and drug trials.
Prosecutors say Rajaratnam earned up to $75 million illegally through his trades while Gupta's attorneys point out that their client earned no profits.
At trial, Gupta was convicted of three counts of securities fraud and one count of conspiracy, insider trading charges that prosecutors said should result in a prison sentence of up to 10 years in prison.
Rejecting defense arguments that a community service sentence would be sufficient, Rakoff said a prison sentence was necessary to send a message to insider traders that "when you get caught, you will go to jail."
"While no defendant should be made a martyr to public passion, meaningful punishment is still necessary to reaffirm society's deep-seated need to see justice triumphant," the judge said. "No sentence of probation, or anything close to it, could serve this purpose."
Defense attorney Gary Naftalis promised to appeal, saying his client had suffered a fall "of Greek tragedy proportions."
Prosecutors accused Gupta, a former chief of the global consulting firm McKinsey & Co. and a onetime director of the huge consumer products company Procter & Gamble, of "above-the-law arrogance" in feeding Rajaratnam inside tips between March 2007 and January 2009.
Goldman Sachs chairman Lloyd Blankfein testified at trial that Gupta appeared to have violated the investment bank's confidentiality policies.
Naftalis told the judge that Gupta had "one of the best reputations on the planet. His loss of reputation is severely strong punishment."
He urged that Gupta, who was born in Kolkata, India, be ordered in lieu of prison to work with the Rwandan government in rural areas to fight HIV, malaria and extreme poverty or focus on developing new initiatives in India that would address accelerating migration to India's cities. More than 400 letters written to the judge on Gupta's behalf included documents signed by Microsoft co-founder Bill Gates and former U.N. Secretary-General Kofi Annan.
Rakoff said he could not spare Gupta from prison and only order him to perform community service. "It's not a punishment. It's what he finds satisfaction doing," the judge said.
At Gupta's trial, which began in May, the government highlighted a Sept. 23, 2008, phone call it said was made from Gupta to Rajaratnam only minutes after Gupta had learned during a confidential conference call about Warren Buffett's planned investment through Berkshire Hathaway of $5 billion in Goldman.
Moments after the phone call ended at 3:55 p.m., Rajaratnam purchased $40 million in Goldman stock — an 11th hour trade that ended up making him nearly $1 million — at the height of the financial crisis that had engulfed the country.
The judge at sentencing called that phone call "the functional equivalent of stabbing Goldman in the back."
In another recorded phone call in 2008, Rajaratnam told one of his traders that he had gotten a tip "from someone who's on the board of Goldman Sachs" that Goldman was facing an unexpected quarterly loss.
Gupta, prosecutors said, was motivated to help Rajaratnam because he had a financial stake in some of the hedge fund manager's business ventures.
In his attack on federal sentencing guidelines that are meant to be advisory, Rakoff said "mechanical adding-up of a small set of numbers artificially assigned to a few arbitrarily-selected variables wars with common sense."
He added: "Whereas apples and oranges may have but a few salient qualities, human beings in their interactions with society are too complicated to be treated like commodities, and the attempt to do so can only lead to bizarre results."
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Associated Press Writer Tom Hays contributed to this report.