The Verdict of U.S Federal CourtA former director at Goldman and Procter & Gamble Co., Mr. Rajat Gupta wasconvicted on three counts of securities fraud and one count of conspiracy forpassing along confidential boardroom information about Goldman to a hedgefund that earned millions of dollars trading on his tips. He was acquitted of twocounts of securities fraud, including the only one relating to P&G.Mr. Rajat Gupta, who is also a former head of McKinsey & Co., faces up to 20years in prison on each of the fraud charges and up to five years for theconspiracy charge. But his sentence is likely to be significantly lower underfederal guidelines. Sentencing is set for Oct. 18.The 12-member jury, sitting in a New York federal court just blocks from WallStreet, handed up a quick verdict after a four-week trial. Janeat Brown, a 32-year-old fourth-grade teacher who was juror No. 5, said that in the first few hours ofdeliberations, 11 of 12 jurors believed Mr. Rajat Gupta was guilty.By contrast, jurors deliberated 12 days last year before convicting hedge-fundtitan Raj Rajaratnam, who now is serving an 11-year prison term. Some jurorsshed tears after the verdict was read, as Mr. Rajat Guptas daughters, who had satin the front row throughout the trial, sobbed and hugged one another."We wanted him to walk, go home to his family, live a very prosperous life," saidjuror Ronnie Sesso, a 53-year-old youth advocate in New York. "I struggled witheverything…. But looking at the evidence made it clear."An appeal is likely. "We continue to feel Mr. Gupta is innocent of all thecharges," said Gary Naftalis, his lawyer. "He didnt trade, he didnt tip Mr.Rajaratnam. He didnt receive a dishonest dime."Goldman said in a statement, "We are very disappointed that Mr. Gupta breachedhis duties as a director and violated our shareholders and the firms trust."On Thursday morning, only one juror wasnt convinced Mr. Gupta was guilty,according to Ms. Brown, the teacher. This person had previous experience infinancial services and repeatedly drew upon it to make their case, according toMs. Brown.
"It was sort of frustrating to know that the evidence was there but personalexperience was being brought into it," she said.The other jurors kept saying they needed to make a decision based on theevidence, she said. The group then went around the room and examined theevidence. After a full day of deliberations, the 12th juror was finally convinced ofMr. Guptas guilt.Ms. Brown was a holdout herself on count No. 6, securities fraud related to thepurchase of 180,000 shares of Procter & Gamble. She said she believed Mr.Gupta was guilty of tipping Mr. Rajaratnam about P&G. On Friday morning,when she heard the others arguments about why he was innocent, she says shechanged her mind and voted not guilty.Mr. Gupta, who is free on bail until his October sentencing, is perhaps the mostprominent defendant ever convicted of insider trading. While arbitrager IvanBoesky was well-known at the time of his guilty plea in the 1980s, he wasnt asdeeply embedded in American corporations as Mr. Gupta, who advised manyhigh-profile chief executives. Junk-bond trader Michael Milken was indicted inan insider-trading investigation but pleaded guilty to other charges. MarthaStewart was also probed for insider trading but convicted of obstructing justice.The verdict was a huge victory for prosecutors, and could embolden them to bringmore insider-trading cases without the use of wiretaps, lawyers say.Much of the evidence against Mr. Gupta was circumstantial, including phonerecords that showed he promptly called Mr. Rajaratnam after receivingconfidential information. The billionaire founder of hedge fund Galleon Groupthen ordered his funds to trade on the inside information."Mr. Gupta has now exchanged the lofty board room for the prospect of a lowlyjail cell," said Preet Bharara, the U.S. attorney in Manhattan. "Violating clear andsacrosanct duties of confidentiality, Mr. Gupta illegally provided a virtual openline into the board room for his benefactor and business partner, Raj Rajaratnam."Mr. Gupta—a figure out of central casting with a square jaw, silver hair anddistinguished bearing—sat erect with his hands clasped in his lap during the trial.Friends said he wanted to testify in his own defense that he was innocent.
Call Transcripts and AudioCall between Raj Rajaratnam and Rajat Gupta -- July 29, 2008Call between Raj Rajaratnam and Danielle Chiesi -- Aug. 15, 2008Call between Raj Rajaratnam and Anil Kumar -- Oct. 3, 2008Call between Raj Rajaratnam and Galleon employees -- Sept. 24, 2008Call between Raj Rajaratnam and Galleon trader Ian Horowitz -- Sept. 24, 2008Call between Raj Rajaratnam and David Lau -- Oct. 24, 2008"He just wants to get it out," Anil Sood, a friend from Mr. Guptas childhood inIndia who testified as a character witness, said in the closing days of the trial,adding that Mr. Gupta was angry and frustrated over the prosecution.Ultimately, Mr. Gupta took the advice of his lawyers, and the urging of hisfamily, and elected not to take the stand, believing his best chance at acquittalwas to raise doubts about the governments case, said Mr. Sood in an interview.Any appeal would be likely based in part on an argument that the judgeimproperly allowed the government to play certain wiretaps in which Mr.Rajaratman bragged to associates about inside tips, Mr. Naftalis indicated. Thedefense had objected to those tapes as hearsay.Mr. Naftalis said Mr. Gupta plans to ask U.S. District Judge Jed Rakoff to setaside the verdict and will appeal if he allows the verdict to stand.A native of Kolkata, Mr. Gupta moved at a young age to New Delhi, where hethrived despite the deaths of his mother, a teacher, and his father, a freedomfighter against the British and journalist, when he was in his teens. Mr. Guptastudied engineering at the Indian Institute of Technology and came to the U.S. in1971 to attend Harvard Business School.Two years later, he broke into McKinsey, a top-tier consulting firm for Americasmost powerful corporations. In 1994, at age 45, he became the first non-American-born leader of the firm, which then had $1.3 billion in annual revenue.Later, Mr. Gupta helped his alma mater in India start the Indian School ofBusiness in Hyderabad, with donations he sought from corporate executives.Players in the Gupta Trial
There was drama in the courtroom Friday. For a moment, after the jury foreman,Richard Lepkowski, said Mr. Gupta wasnt guilty on the first count, some inattendance thought he might be acquitted of all the charges. But after Mr. Guptawas found guilty on the second count, his daughters broke down in sobs in thefront row behind him, collapsing on one another. Mr. Guptas wife, Anita, leanedback, staring at the ceiling, then leaned forward, burying her face in her arms.Mr. Gupta, sporting a dark suit and a red spotted tie, showed no reaction. Hepushed slowly through a throng of reporters outside the courthouse, his backarched straight, and into a waiting car with his family. Mr. Gupta didnt speak.Prosecutions of insider trading based on circumstantial evidence once werecommon, but since 2009 federal authorities in New York have strengthened theirhand by using wiretapped phone calls to obtain 62 convictions and guilty pleasout of 68 people charged.Mr. Guptas defense team, besides pointing out the lack of such direct evidenceagainst him, sought to persuade jurors that he had a falling out over $10 millionthat he had lost in an investment with Mr. Rajaratnam, negating any motive hewould have had to provide the tips.Mr. Lepkowski described Mr. Gupta as "the American dream." But he said jurorswere influenced by wiretaps of Mr. Rajaratnam bragging to associates that hedreceived tips about Goldman, and by a recording on July 29, 2008, of Mr. Guptaspeaking with Mr. Rajaratnam about what had happened at a Goldman boardmeeting.Defense lawyers tried in vain to keep the tape out of the trial because they saidthe information was already public and Mr. Rajaratnam never traded on it.Prosecutors said it showed the relationship between the two.Rajat Gupta leaves federal court in New York following the guilty verdict onFriday. He is free on bail.The four-week trial had as its backdrop the financial crisis that exploded in thefall of 2008, when Mr. Gupta was accused of giving Mr. Rajaratnam insideinformation on two issues crucial to Goldmans financial health: a $5 billion
investment by Warren Buffetts Berkshire Hathaway Inc.BRKB -0.30% and thebanks first quarterly loss as a public company.Prosecutors said Mr. Gupta, who invested with Mr. Rajaratnam at Galleon invarious ventures, tipped him off because of their friendship and business interests.Their relationship was so close, prosecutors said, that Mr. Gupta had open accesswith his own keycard to Galleons Midtown Manhattan office.The defense countered that there was no evidence Mr. Gupta profited, or tradedon, any alleged tip.Prosecutors were able to piece together a pattern of telephone and trading records,supported by the testimony of witnesses, including Goldman Sachs ChiefExecutive Lloyd Blankfein. Prosecutors accused Mr. Gupta of phoning Mr.Rajaratnam time and time again immediately after learning of big developmentsat the companies in which he served as a director.