Rajat Gupta gets two years jail term for insider trading crimes

Rajat Gupta's sentencing comes exactly a year after he was charged with securities and conspiracy fraud and marks a stunning fall from grace for the Indian-American who rose through the ranks to become one of the most prominent titans on Wall Street

New York: Rajat Gupta, the fallen tycoon from Wall Street was on Thursday sentenced to two years in prison and ordered to pay a $5 million fine by a US judge who termed Indian-American's insider trading crimes as "disgusting" and a "terrible breach of trust", reports PTI.


Gupta, 63 was also ordered by US District Judge Jed Rakoff to serve a year of supervised release after the end of his prison term.


The IIT and Harvard-educated former Goldman Sachs director would have to surrender to a designated prison on 8 January 2013. Rakoff denied Gupta's request to remain free on bail while he appeals his case.


A court could have taken about two years or more to rule on Gupta's appeal.


While the judge agreed to a request from Gupta's lawyers that he be assigned to New York's medium-security prison in Otisville, the final decision rests with the Federal Bureau of Prisons.


Dressed in a dark blue suit, Gupta looked tensed and appeared to hold back tears as his sentencing proceedings began in Manhattan federal court here on Wednesday. He sat expressionless as Rakoff read the 15-page sentence at the end of the hearing which lasted over two and a half hours.


Gupta's sentencing comes exactly a year after he was charged with securities and conspiracy fraud, for which he had faced a maximum sentence of 25 years and marks a stunning fall from grace for the Indian-American who rose through the ranks to become one of the most prominent titans on Wall Street.


Rakoff, who on multiple occasions gave Gupta credit for his life of philanthropic works, said at the heart of Gupta's offenses is his "egregious breach of trust."


"He is a good man," Rakoff said. "But the history of this country and the history of the world is full of examples of good men who did bad things."


Rakoff said the evidence that Gupta passed illegal information about Goldman Sachs to now-jailed hedge fund founder Raj Rajaratnam was "not only overwhelming, it was disgusting in its implications... It was a terrible breach of trust."


Rakoff said the urgency and manner in which Gupta shared information about Warren Buffet's five billion dollar investment in Goldman Sachs with Rajaratnam "was the functional equivalent of stabbing Goldman in the back."


"In the eye of the law, Gupta's crime was to breach his fiduciary duty of confidentiality to Goldman Sachs; or to put it another way, Goldman Sachs, not the marketplace, was the victim of Gupta?s crimes as charged," the judge said.


Rakoff said he does not dispute Gupta's innumerable charitable works and his intentions to help out others selflessly but his personal history and characteristics "starkly contrast" with the nature and circumstances of his crimes.


Before Rakoff gave his judgement, Gupta made his first comments in court, reading from a prepared statement and expressing regret over letting his family and colleagues down.


Gupta's wife and four daughters sat right behind him in the spectators' gallery, holding each others' hands and often consoling each other as they wept through the hearing. Several of Gupta's close friends and other members of family were also present in the packed courtroom.


"The last 18 months have been the most challenging period of my life since I lost my parents as a teenager. I have lost my reputation that I have built over a lifetime. The verdict was devastating to my family, my friends and me," Gupta said.


At the end of the court's proceedings, Gupta smiled as he shook hands and hugged his team of defence lawyers.


Surrounded by his family, he said he had no comment on the sentence as he walked out of the courtroom.



Shadi Katyal

5 years ago

What a shame that a person of such name and repute should go so low for MONEY??? Are we genetically so deformed that such greed never ends.
The person of his caliber and repute cannot deny that he was not involved as court has proved of his guilt.
Looking at the all kinds of SCAMS in India ,people like him should have shown the right path and not followed the same.
What a shame

Fault Lines in the development models of China and India–Part II

During the last four decades, Western technological innovation has focused too little on reducing the adverse environmental impact of growth and too much on saving labour—something that India and China have in abundance. So it makes sense for India as well as China to focus their scientific prowess on new technologies that use fewer material resources, but use more hands

To some of us, it is clear that the kind of development model that China and India chose in 1980 and 1991, respectively, is not a sustainable one. Such a development model based on the post-1970 distorted US model would not deliver what the people of both countries aspire to. It is amply clear that the development model based on promoting intensive consumption, as is prevalent in the United States and Europe since seventies, is not sustainable ecologically for the world and is culturally alien to India and China. The current Western model is dependent on a business-provoked, self-centred lifestyle, funded largely by offering careless financial credit to the common people, akin to the norms in the Western world. The current lifestyle is not healthy, both to the mind and the body. If we really want inclusive development and wish to carry our rural folk along, then we both have taken the wrong road. It is completely unimaginable that 2.5 billon people of India and China can ever hope to have a lifestyle similar to the Americans. Nature has not endowed the world with resources to match. Not only does the world not possess resources such as fossil fuels to support such dreams, but we do not even have enough water!


To understand the gravity of the situation, compare the per capita consumption of the fuel and water consumed by the Americans and Europeans. Indeed, both of us have a sizable population that lives like the Americans, and they too consume and pollute as much. Therefore, even if the leaders of both nations dream of bridging the widening gap between their haves and have-nots and focus on inclusive (India) or harmonious (China) development, they can never realise that dream. Both countries have a traditionally superior cultural model to lead a happy life that assures good health, happiness, social peace and comfortable living without excessive use of resources. Two centuries of technological progress and outstanding innovations in the use of science and technology will very well supplement our basic tenets and our traditional wisdom in conducting a harmonious life that can include many more. It is the combination of traditional lifestyle and modern knowledge that can help India and China to evolve a fresh alternative development model. In fact, today, one can feel that both the Dr Manmohan Singh-led India and the Hu Jintao-led China are indigenously seeking it.


The issue indeed, is more fundamental than the materialistic aspects of lifestyle which form an integral part of the Western model. The Western concept of being a developed society as has evolved in the last four decades, and their current model of economic development itself has several serious shortcomings, besides not being sustainable. It is also increasingly being realised that materialistic lifestyle resulting from such a model has many undesirable consequences, most important of them being the menacing fallout of global warming.


At the social level too, many are of the opinion that such a life is unnatural and emotionally unhealthy. Instead of narrowing the gap between the rich and the poor, pursuing the Western model is, in reality, widening it. Various studies show that a growing number of people in the developed world are emotionally unsettled, less happy and have psychological problems.


Interestingly, both, the Indians and the Chinese, on the other hand, have been practicing an alternate lifestyle model which can be broadly described as “simple living and high thinking”. This alternative way of life is nature friendly, healthy and emotionally fulfilling. This helped their huge population of poor to live tolerantly and peacefully. Some think this is a utopian and romantic belief since one sees helplessness in their peacefully tolerated abject life in the shanties. The economically weak in both these countries can bear their deprival of material comforts without the mental misery that the poor in the West are seen to go though. Psychiatry practice is definitely not a rewarding profession in India or China! Spiritual teachings by saints in India and Confucian thoughts and Buddhism in China have prevented them from getting hurt.


However, the Western lifestyle is exciting due to the higher levels of physical comfort, safer living and personal productivity. It is a fact that all these are the result of technological advances and man’s quest for new knowledge that happened in the Western world during the last two and half centuries. The Western world has the social order and the wisdom to encourage innovations. However, both the Chinese and the Indians gave the world foundational technologies till they got bogged down by the rule of the invaders from the second millennium onwards. Western society, for the last two centuries, used its innovative exploitation of technology and natural resources for comfortable living. Later, a progressively evolved industrial revolution was seamlessly followed by the communication and information revolutions to enable this remarkable transformation. It allowed common citizens to become productive participants and get rewarded in return.


 The problems started when inventions and discoveries became intellectual “private properties” and the tools came in the hands of money sharks in business. In the late 1950s, intellectual property of an individual became a corporate property with financial limits on its exploitation. Even till the early seventies, the Western developmental model looked ideal since per capita consumption was limited and earning differentials between the rich and the poor were justifiable. But, it is now realised that the money-centric modern business culture that essentially evolved from the early 1970s out of US business schools has been leading the world up the garden path. One can even say that the root cause of the current global economic crisis emanates from the greed of the multinational businesses that lured their democratic governments to go rather recklessly on a privatisation spree. It was essentially an escape route for politicians as they allowed public service to become bureaucratic, largely due to their poor governance and the consequent laxity in imposition of discipline in the delivery of public service by bureaucrats.


Today, big businesses use the magic of modern communication media to brainwash young men and women to practice mercenary, profit-centric style of management, focusing only on stock price and earnings. There has hardly been any organic growth of companies. The sizes grew primarily through mergers and acquisitions from all over the world. The media is being used shrewdly to teach people to live beyond their means and metamorphose into thoughtless consumers. Companies now build on the guilt factor and lure the young to buy non-essentials by making them out to be essentials. Business schools sponsor a win-at-all-costs trading approach with charismatic role modelling, teaching and coaching with an orientation to be reckless and with a motive to profit by every means. I wish that those in power in the United States used management thinker Tom Peter’s advice given in the early 1980s to close down all US business schools, preferably with its faculty locked inside!


In fact, I strongly believe that US multinationals in the early seventies took charge of the US economy. I have always felt that the United States that I was familiar with before 1970 has changed in terms of cherished social values. Due to the mismanagement of their economy on the advice of such business management experts, it is fast declining from its global supremacy. The current plight of the Europeans too can be easily traced to the American influence on their governments and institutions. The Western world has largely become the world of consumers and, consequently, produces little and does not create real wealth. Only those who trade in money and commodities earn well through market manipulation. People in the West also seem to increasingly realise the bitter truth that marketing is driving them into miseries. The boundless credit and lure of multimedia is hurting them like none other. Many independent studies have shown that excessive consumption of food and fun is harming them, both in body and in mind.


Till the early seventies, business culture in the United States too was different. Bright brains, those days, were in research labs and on shop floors using innovations to create some real wealth. There evolved a business culture that caused the United States to get rich as a society. Significantly, this was an inclusive growth. The real income of the average American had been soaring since the end of World War II. Wage ratios between the wealth-creating talents and shop floor workers were acceptable to all. The country’s trade balance was positive and consistently growing. Employment was ever-rising. The standard of living was improving democratically year after year. The number of college-going students doubled every five years, and unlike today, getting in was no longer the privilege of the rich and elite. During those decades, there were major breakthroughs in technology. James Watson and Francis Crick won the Nobel Prize for decoding the molecular structure of DNA. Tuberculosis had all but disappeared, and Jonas Salk’s vaccine was wiping out polio in the United States. Many may not know, but Dr Salk had refused to take a patent for his discovery and had said that he invented it to prevent human suffering. This reflects the culture that prevailed then. Then during the Nixon presidency came multi-national provoked economic theories and practices. Today, we cannot catch a glimpse of that industrious US. The companies grew organically, then. Today, the only corporate growth route is through mergers and acquisitions. {break}


Talking of happiness, both India and China have masses of contented poor who smile more frequently on an empty stomach than their well-fed Westernised rich compatriots living in their city towers. Here, one can see that in the matter of poverty reduction, the Chinese leadership did far better than its Indian counterpart, which is handicapped by the ‘system’ as claimed by it.


A careful study of China’s spectacular success since it began its transition to a market economy reveals that they managed it with adaptable strategies and policies: as each set of problems were solved, new problems arose, for which new policies and strategies were devised, and this has been going on year to year. To appreciate this policy, one has to read the annual reviews of the country’s progress by successive presidents since 1978. To that extent, single party rule has benefitted China, ever since their leadership got its new vision from Deng Xiaoping. China recognised that it simply could not transfer economic institutions that had worked in other countries without adapting it to the unique problems confronting China. Today, senior Chinese leaders talk about the need for a new economic model. They seem to be aware that their economic growth is mainly enabled by materialistic multinationals, which moved their manufacturing set-ups to China in order to use its cheap labour and very favourable tax regime. This Western model helped China to achieve over 10% annual GDP growth for three long decades. But this will not work long-term even if it has enabled China to lift hundreds of millions of Chinese out of poverty by wealth-creating activities like manufacturing and agriculture—the two vocations that use labour of every type in a large measure. Growth in manufacturing cannot be sustained too long without serious consequences. There is no doubt, however, that Chinese workers have been important beneficiaries, as it created over 200 million new blue collared jobs for their rural poor by their efficiently controlled migration to cities.


India, unfortunately, has failed to gainfully support both these areas. But this growth model has its limits. Global slowdown and lack of economic growth in the Western world is already hurting exports with consequential joblessness in China. China’s GNP export-led growth indeed looks impressive to everyone. One can see its real reflection on the faces of its people, not just on the streets of Shanghai, Dalian or Wuhan, but also in its villages. Some of the areas that we went to during our SME study were a hundred miles away from industrial areas in China, but the rural folk there had stable electricity, paved roads, televisions and even Internet connectivity.


So far, with an increasingly large share in the export market, half of China has benefitted greatly. But China has another half that is still very poor. Will there be a sustained demand with the ongoing poor state of economies of the developed world? Today, a lot of these rural communities live on the remittances from family members who have migrated to coastal cities. It is similar to the money orders sent by migrant Indians in Mumbai to their families in Bihar, UP, the Konkan area or any other state. We found that even the farmers were better off with new crops and better seeds. The local government sells high-grade seeds with a guaranteed rate of germination on credit. In spite of this, China still has a sharp rich-poor divide. The sad part is that this divide is growing even though income levels are higher. For the Chinese people who have seen total equality in poverty, this economic divide becomes far more painful. In India, a sharp rich and poor divide has existed since eternity, but the Chinese have seen the perils of equitable distribution of poverty that Mao brought about from the early 1950s to the end of the 1970s.


Leaders in China as well as India realise that the current divide must be narrowed if they have to have inclusive and ecologically sustainable growth. Luckily, healthy life for all seems to be China’s current agenda. I have seen playgrounds and well-maintained stadiums even in small places in China, where the young are seen in large numbers practicing sports and games. Everywhere, one can see carefully planned and well-maintained streets, green areas, parks as well as extensive public transportation systems. While some Indian leaders in Delhi have well-intended schemes, their corruption-infested delivery channels frustrate realisation of any of their noble objectives.


Realisation to move away from the Western model and seek another has now become more urgent after the global economic clash and its backlash on India and China. China felt it far more strongly than India due to its over dependence on export trade. They realised that even countries seemingly committed to competitive markets were getting protective and complaining of unfair competition. The export-led growth model was in danger and maintaining high growth was untenable. This strategic model worked well for China earlier in many ways. It supported technology transfer, helped to close the knowledge gap and rapidly improved the quality of manufactured goods. Export-led growth meant that China could produce without worrying about developing the domestic market. But the global economic catastrophe changed that quickly. China realised that it had to change. The country has a large portion of its reserves blocked due to its earlier strategy of “vendor finance” by depositing its earnings in the United States. It financed the huge US fiscal and trade deficits, allowing Americans to buy more goods than they could sell. In fact, to meet the challenge of restructuring its economy, removed away from exports and resource-intensive goods, China is stimulating domestic consumption. While the rest of the world struggles to raise savings, China, with a savings rate in excess of 40%, struggles to get its people to consume more.


Both Indians and Chinese, especially those who are not economically strong, intuitively do not trust the government and focus on saving for their “rainy day”. The Chinese government is therefore, now focussing on providing better social services (public health care, education, nationwide retirement programmes, etc.) with a hope to move people away from their urge to save.


The Chinese government is also giving cheaper access to finance for small and medium-sized businesses. Both countries therefore, will have to look for new sources of dynamism in their growing entrepreneurial ranks, which requires a commitment to creating an independent innovation system.


China has, for long, invested heavily in higher education and technology, and now it is striving to create world-class institutions. India too needs to somehow speed up. While both countries should stimulate an environment of dynamic innovation, they should resist pressure by Western governments to adopt the kind of unbalanced intellectual property laws that are being demanded of them. Instead, they should pursue a balanced intellectual property regime because knowledge itself is the most important input in the production of knowledge; a badly designed intellectual property regime can stifle innovation as has been the case in several areas in the post-1970s America. IP rights protection needs a financial cap, after which that protection must go, rather than become the current protection over a long period of time.


During the last four decades, Western technological innovation has focused too little on reducing the adverse environmental impact of growth and too much on saving labour—something that India and China have in abundance. So it makes sense for India as well as China to focus their scientific prowess on new technologies that use fewer material resources, but use more hands.


However, it is essential to support innovation and scientific research in ways that ensure that advances in knowledge are widely used. This itself may require innovative approaches quite different from intellectual property regimes based on privatisation and monopolisation of knowledge, which result in high prices and restricted benefits.


(PS Deodhar is founder and former chairman of the Aplab Group of companies. He is also the former chairman of the Electronics Commission of the Government of India and was an advisor to late Prime Minister Rajiv Gandhi on electronics. He also was the chairman of the Broadcast Council in 1992-93 that set in motion the privatisation of the electronic media with metro channels. He can be contacted at [email protected].)


Dr Verghese Kurien: More than the Milkman of India

The lessons we can learn from this great man are simply invaluable

How often do we come...

Premium Content
Monthly Digital Access


Already A Subscriber?
Yearly Digital+Print Access


Moneylife Magazine Subscriber or MSSN member?

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)