NEW YORK — Rajat Gupta, a consummate business insider who once sat on the board of Goldman Sachs Group, was convicted Friday of leaking secrets about the investment bank at the height of the financial crisis, a major victory for prosecutors seeking to root out illicit trading on Wall Street.
A Manhattan federal court jury delivered the verdict on its second day of deliberations, finding that Gupta fed stock tips to his hedge-fund manager friend Raj Rajaratnam gleaned from confidential Goldman board meetings. Gupta was found guilty of four of six criminal counts and could face a prison term of up to 25 years.
The conviction burnishes the record of the U.S. Attorney’s Office in Manhattan, which has spent the past several years aggressively prosecuting insider trading. More than 60 people have pleaded guilty or have been convicted in cases brought by the FBI and the Manhattan U.S. Attorney in the past four years.
In its case against Gupta, who headed elite business consultancy McKinsey & Co for nine years and is the most prominent person charged in the insider-trading crackdown, the government faced a challenge. There was no evidence that he traded on any of the information he allegedly leaked, and the government did not have the trove of FBI wiretaps that helped win a conviction last year of Rajaratnam, who is serving 11 years in prison.
Jury foreman Rick Lepkowski told reporters after the verdict: “On the counts we convicted, we felt there was enough circumstantial evidence.” He said wiretaps in which Rajaratnam was heard telling two of his traders about the board information “didn’t tip the balance.”
The verdict capped a four-week trial that featured Goldman chief executive Lloyd Blankfein as a star government witness. All of the counts Gupta was convicted of involved tips and trades in Goldman stock in September and October 2008, including passing inside information on a crucial $5 billion investment by Warren Buffett’s Berkshire Hathaway.
As the verdict was read in court by the jury foreman, there was a gasp when Gupta was pronounced “not guilty” on the first count of securities fraud. It involved whether Gupta told Rajaratnam about Goldman’s quarterly earnings after a March 12, 2007 board meeting. He was then declared guilty on three other securities fraud counts and a count of conspiracy.
Gupta, 63, also was found not guilty of divulging the quarterly earnings in January 2009 of Procter & Gamble, where he also served as a board member.
After the verdict, an ashen-faced Gupta glanced grimly back at his wife and daughters. Later, the family stood together hugging in the courtroom as Gupta tried to console his distraught, sobbing daughters and wife.
“This is only round one,” his defense attorney, Gary Naftalis, told reporters. “We will be moving to set aside the verdict and will, if necessary, appeal the conviction.”
Gupta, who lives in Westport, Conn., is also a former director at American Airlines and had ties to a prominent business school in his native India. Well known in philanthropic circles, he advised groups such as the Bill and Melinda Gates Foundation to help fight AIDS, malaria and tuberculosis in developing countries.
Gupta “achieved remarkable success and stature, but he threw it all away” Manhattan U.S. Attorney Preet Bharara said in a statement after the verdict.
U.S. District Judge Jed Rakoff scheduled a tentative sentencing date of Oct. 18. The maximum sentence for securities fraud is 20 years and the maximum sentence for conspiracy is five years, although it seems unlikely that Gupta would receive such a heavy punishment.