Lenient Inside-Trading Sentence Outlasts Appeal

(CN) - The 2nd Circuit upheld the conviction and sentence of former Goldman Sachs director Rajat Gupta who gave insider trading information to Galleon hedge fund founder Raj Rajaratnam.

Gupta was sentenced in 2012 to two years in prison, and fined $5 million for notifying Rajaratnam, his close friend, that Warren Buffet was about to invest $5 billion in Goldman Sachs.

Rajaratnam bought more than $40 million of Goldman Sachs stock in the last minutes of trading on Sept. 23, 2008. He is serving an 11-year sentence for serial inside-trading crimes.

Giving weight to Gupta's lifetime of philanthropic work at sentencing, U.S. District Judge Jed Rakoff in Manhattan imposed just a quarter of maximum eight-year sentence.

"The court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need," Rakoff said. "But when one looks at the nature and circumstances of the offense, the picture darkens considerably."

A three-judge panel of the 2nd Circuit affirmed Gupta's conviction and sentence Tuesday.

The trial judge properly admitted wiretapped telephone conversations between Rajaratnam and Galleon traders because "they were statements in furtherance of a conspiracy of which Rajaratnam and Gupta were members," Judge Amalya Kearse wrote for the court.

Conversely, the lower court correctly refused to admit Gupta's purported evidence that another officer at Goldman Sachs tipped Rajaratnam about the impeding Buffet bailout. There was no evidence that the officer had access to the confidential information, according to the ruling.

Gupta also failed to challenge the lack of jury instruction that "character testimony may in and of itself raise a reasonable doubt" as to defendant's guilt.

Although such an instruction is common, it is not required, and in this case "artificially singles out one aspect of the proof and gives it a sort of prominence above all others by implication," Kearse wrote.

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