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Gupta Insider Trading Case: Throw The Book At Him

He had the best defense money could buy; the judge was impartial; the jury wanted to acquit him but yielded to the force of facts. Rajat Gupta has been found guilty of insider trading and faces sentencing for his crimes.

So throw the book at him. Hard. It needs to hurt and it needs to be seen to hurt.

Gupta’s betrayal of the trust of his colleagues and the public was monumental. It was shocking, shameful, and without excuse. He was worth $80 million already according to testimony at the trial, but for greed like his, that wasn’t enough. He had to have more even if it meant breaking the law, betraying the company that gave him so much trust, and cheating ordinary investors to further enrich his rich and powerful crony.

What happens next should hurt him, a lot. He should go to jail for a very long time. He should lose zillions — so much, that his family will feel a severe and serious collapse of their lifestyle. Via Meadia doesn’t normally wish this on anyone, but it would be fitting and proper for hungry plaintiff’s lawyers representing the investors who suffered because of his lawbreaking to pick the bones of his fortune clean with hundreds and thousands of harassing lawsuits. (If the laws as they now stand do not allow for the destruction of a tainted fortune through harsh, confiscatory fines and restitution suits, they should change. Those tempted to cheat in our financial markets must understand that they risk even the most basic financial security for their families when they go astray.)

We say this not because we hate business and capitalism, but because we think they are the most important methods humanity has yet found to better its condition. Business and capitalism depend on the rule of law and on the ethics of those who rise in the system. When vicious, abusive and unprincipled greedmeisters like Gupta violate trust and corrupt the core workings of the system, they are endangering the operation of the system on which all our economic hopes and livelihoods depend.

The harm Gupta has done goes beyond the direct consequences of his fraud, his betrayal and his lies. He damaged and weakened the framework of trust on which the capitalist system depends. He has weakened the faith in tens of millions of people that the system can be fair and that the rich must also play by the rules.

To even the score, he must now become an example of what a terrible vengeance will be wreaked on those who do what he did. The depth of his fall, the awful consequences of his actions, the horrendous consequences for those he loved and cared about must be so clear that others will be deterred — and that society will see that justice is executed on the strong and the rich as well as on the friendless and the poor.

No human being — not Rajat Gupta, not Jerry Sandusky — is all evil. We are all complex, fearfully made mixtures of good and bad, weak and strong, wisdom and folly. No human justice is perfect. No one in a court of law — not the judge, not the jury, not the spectators or the lawyers or the defendant — is wholly innocent.

But the law is there to protect the people, and to do this job the law must sometimes be stern and even harsh. This is one of those cases. There is much to admire in Mr. Gupta’s rise, his life and his talents. But that cannot, must not stay the hand of justice in this case. I very much hope that Mr. Gupta and his family find peace, but the road to that peace must now pass through dark and desolate landscapes. Shame, pain, financial loss: those are the consequences of Rajat Gupta’s choices, and those are the consequences he and his family must now bear.

The big fish in America’s financial markets must be held accountable for their crimes, or America itself is in danger.  Inevitably given the complicated nature of the financial markets it is going to be hard to write laws that protect the innocent without being dangerously vague and broad. Great care should be taken in writing these laws not to criminalize legitimate if sharp financial practice. And giving excessive power to prosecutors and politicians to brandish broad, vague laws to force Wall Street to do their bidding is a cure as bad as any disease.

This is all the more reason for the friends and supporters of capitalist enterprise to get in there first with smart. limited but extremely tough laws that can police our financial markets without wrecking them. If capitalism’s friends can’t do a proper job policing it and protecting the public from the bad guys, capitalism’s enemies will step in and do it for us.

Bad idea.

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  • Larry, San Francisco

    Jon Corzine should be next!

  • Mrs. Davis

    Agree 100%.

    None of us are perfect, but most business people conduct themselves professionally in a trustworthy manner. Were it not so we could not trade in the relatively l;ow cost fashion that has helped lead to our prosperity. Those who are found to have violated that trust must be made examples.

    However, he should be paroled after civil suits have made his family destitute. There is no point in the taxpayers paying for one more day in Club Fed than is necessary. And seeing his family destitute pariahs 24/7 will be much worse punishment than an additional day in Allenwood.

  • Kevin

    The issue I worry about is actual guilt in these high profile cases. I think too many AGs, DAs and US Attorneys try to promote their careers with dubious cases and novel interpretations of the law in high profile cases. However, here it looks like he really is guilty – I haven’t seen any former colleagues at McKinsey saying he was railroaded for example. If its clear he broke well established law, then he ought to have the book thrown at him.

    BTW, from what little I’ve read it doesn’t seem he was motivated so much by money in and of itself, but rather status and fame – the need to be seen as playing the game at a high level.

    I’m also interested that he dies not seem to have behaved this way at McKinsey, but only after he left and started running with a whole different crowd. I wonder if the culture at McKinsey restrained this sort of behavior but when he was surrounded by new people with a different approach to ethics his internal ethical self-regulation deserted him. In some ways it’s a terrifying thought – there but for the grace of God. Would we all abandon our previous lifelong moral code if we find ourself with new associates?

  • Richard F. Miller

    Regulations and regulatory agencies can be co-opted or, with the help of lawyers and accountants (themselves former regulators) engineered around.

    The things that truly get attention are, in the following order, indictment, arrest, perp walk, arraignment, trial, and where guilt is found, a bankrupting fine and a long, long time in the slammer.

    The ultimate goal of regulation should be efficient markets by avoiding corruption, collusion and robbery. Unfortunately, the real goal of regulation is to provide sinecures for the political [persons of easy virtue] and their johns in and out of Washington.

    For a fraction of the regulatory costs imposed by a scam like Dodd-Frank, one could prosecute malefactors until the cows came home. Enough televised perp walks and Wall Street’s new-found honesty would be astounding.

    Meanwhile, Gupta goes down and Corzine skates.

    Got cynicism?

  • Corlyss

    If one element of the crime was that Gupta had to profit from his insider trading, and if the prosecution couldn’t prove he did profit, how’s the conviction of a rich person more than a conviction of being rich?

  • Mrs. Davis

    The ultimate goal of regulation should be efficient markets by avoiding corruption, collusion and robbery.

    Really? Regulation will give us sinless human beings? Someone should have told Jesus. And corruption (bribery), collusion (conspiracy), and robbery were crimes long before the current regime of regulation was instituted. Regulation only allows big players to rig the markets to their benefit.

    We just need to enforce the simple laws simple men can understand vigourously, not create complex laws to give prosecutors the ability to coerce pleas from less powerful defendants. But in this case. even though the evidence was circumstantial, it didn’t take jurors long to decide.

  • Walter Sobchak

    Let us get some perspective, which is something I usually look to you for.

    Gupta did not stick a gun to anybody’s head and force them to put a sell or a buy order in so that he could profit. He may have behaved badly but, his crime was not violent, nor were his victims personally affected by his actions. My guess would be that most of them were but a few dollars worse off per transaction.

    Compare that to Jerry Sandusky who gained the trust of young boys so that he could sexually abuse them and also used his superior size and strength to that end. They physicaly and personally wounded. Not for a few dollars but in the core of their being.

    And if we are going to worry about financial crimes of stealing a few dollars from a large number of people, why shouldn’t we worry about the Federal Government. How about the ethanol heist, the windmill scam, the sugar cartel, and Solyndra? Compared to all of the inside traders who have ever lived, Washington steals more and causes more damage in a single year.

    My anger is reserved for the self righteous guys with wing tip shoes.

  • randy perlmutter

    your posting on gupta is very interesting. most of what you write would be proper to do. however, you are extremely naive if you think any of that will be done. also, did you ever stop to think that the 80 million that he accumulated was from illegal activities. most likely the answer is yes. also, if yoy have foolowed the stock market for the last 20 years, you would realize only insiders acquire wealth. most get raped.

  • Luke Lea

    We also need better tools to identify the culprits. Right now it appears we only nab a few. Obviously if the chances of getting caught are small, miscreants will not be deterred. I’ve read that in China the chances of being caught are around 3 percent. I haven’t seen any figures for the U.S.

  • Mrs. Davis

    Gupta did not stick a gun to anybody’s head and force them to put a sell or a buy order in so that he could profit. He may have behaved badly but, his crime was not violent, nor were his victims personally affected by his actions. My guess would be that most of them were but a few dollars worse off per transaction.

    Would you mind sending me your credit card number at my e-mail address?I promise not to use it too often nor on big purchases. Nor to shower with you.

  • thibaud

    I was curious to see whether the VM post on this open-and-shut case – of a Goldman board member breathlessly giving a notorious inside trader material nonpublic info on GS, WITHIN SECONDS OF THE END OF A GS BOARD MEETING (!) – would elicit more loony tunes commentary from the “starve the gum’mint” crowd.

    Sure enough, we have posts #5 and #7.

    The TP sheep don’t even know when their pockets are being picked by the banksters and their cronies. They elect their heroes, like Scott Brown, and then ignore it when he guts the Volcker Rule and shills for the 2-and-20 carried interest scam artists.


  • Richard F. Miller

    @Mrs. Davis:

    No, efficient markets will not give us sinless humans. But regulations relating to say, the timing window for NASDAQ bids, the sufficiency of disclosure in offering documents, and laws which define criminal activity (and thereby enable us to prosecute) will at least aspire to efficient markets.

    Prosecuting early and often won’t give us sinless human beings either. But you may have noticed that in states that permit concealed carry of firearms, certain types of assaults drop off rapidly after enactment. What prosecutions are intended to do is create terror in the hearts of potential malefactors.

    Believe me, I spent decades in the securities business, and anytime some acquaintance of mine (and there were several) did jail time, the “neighborhood” became a lot safer for customers–for a time.

    I’m afraid it won’t do to bemoan original sin, dwell on how we’re all fallen, and throw up our hands. I’m also afraid that (sticking with Gupta’s line of work) “simple laws simple men can understand vigorously” doesn’t account for RealWorld–a place of highly complex women and men that involve multiple transactions of infinite complexity that most “simple” human beings have difficulty grasping.

    If you want ban Repos, derivatives, and the rest, make your case, but, here, I’ll make it for you without reforming a thing: I never encountered a securities, tax, or currency regulation, no matter how many hundreds of pages they ran, that wasn’t based on one simple law that even the simplest men could understand: Thou shalt not steal. And believe me, Gupta understood the complex laws he broke and the simple law he transgressed.

    Prosecute, rinse, and repeat.

  • Charles R. Williams

    I’m not familiar with the Gupta case. I will assume he is guilty and that justice was served. But there does seem to be a problem with out-of-control prosecutors. Consider Conrad Black, Martha Stewart, Scooter Libby, John Edwards, Ted Stevens, the Amiraults, the Duke athletes and George Zimmerman. None of these prosecutions are/were justified.

  • Boritz

    There is so much here that indicts the liberals/Democrats when you think about it.

    ***…they are endangering the operation of the system on which all our economic hopes and livelihoods depend. ***

    ***He damaged and weakened the framework of trust on which the capitalist system depends.***

    The president did this in, I think, a bigger way when he dismissed 200 years of case law to jack with GM instead of allowing normal bankruptcy proceeding to take place. Most notably the bond holders were shafted to pay for a sweet deal for the UAW. While Gupta’s example may yet become an object lesson for would-be white collar criminals, but the lesson taught by the president is to pray that if the government gets involved in your investments you will be on the side of a favored client group rather than have to just depend on your legal rights.

  • thibaud

    “The big fish in America’s financial markets must be held accountable for their crimes, or America itself is in danger.”

    Note that Paul Ryan’s insane budget proposal would starve the budget for federal law enforcement and for all the regulatory agencies – SEC, FDIC etc – needed to make good on Mr Mead’s devout wish.

    Yet another of the many internal contradictions of “Jacksonian Libertarianism,” that form of unicorn-worship in which capitalism magically regulates itself and global force projection is achieved by slashing the defense budget in half.

  • Kis

    thibaud@15: Paul Ryan’s budget slashes defense in half? Do you have a reference for that?

  • thibaud

    @ #16 – source is the Congressional Budget Office, as summarized nicely here by nonpartisan, straight-shooting economist Robert Samuelson:

    “[Ryan’s plan] doesn’t touch Social Security, the government’s biggest program with $9.9 trillion of projected spending from 2012 to 2021. He does propose a voucher program for Medicare, but it doesn’t take effect until 2022 and exempts the 77 million Americans now 55 and over. Ryan isn’t picking a fight with seniors.

    “[Ryan] achieves big savings by assuming deep cuts to most of the federal government beyond Social Security, Medicare and Medicaid.

    “Ultimately, it would shrink to almost nothing.

    “That’s defense, food stamps, highways, federal courts, basic research … and much more. Altogether, these programs constitute about 12 percent of GDP. By 2022, Ryan’s plan would reduce them to 6 percent of GDP; by 2050, they’d be about 3 percent, estimates the CBO.

    “The United States would virtually disarm, dismantle much of the social safety net and starve important federal responsibilities, from environmental regulation to the FBI. This isn’t likely to happen — and shouldn’t.”

  • thibaud

    To clarify why defense would be slashed under Ryan’s ridiculous budget proposal, consider that defense spending in the post-Cold War era has been 3-4% of GDP.

    Ryan’s ENTIRE discretionary budget – ie, everything outside of the main entitlement programs (SS, Medicare/aid, CHIP and interest payments) – would eventually fall to 3% of GDP!

    So Ryan’s plan assumes either

    A) that the non-military federal government shut down entirely – bye-bye Food & Drug Administration, bye-bye US attorneys, bye-bye SEC and FDIC, bye-bye Federal Aviation Administration, federal highways, Federal Bureau of Investigation, etc;


    B) that most of the above, non-military federal discretionary expenditure be slashed to a skeleton budget, leaving behind a tiny amount for a UK-style defense budget – note that the current Tory govt in the UK under Cameron is already starting down this path, with huge cuts to UK military spending;


    C) Ryan’s numbers make no sense and he doesn’t really know what he’s talking about.

    I vote for C.

  • Kis

    thibaud: Are we to assume there is to be no growth in GDP?

  • WigWag

    Throw the book at Gupta; I’m not so sure that’s in the interest of justice. The inside information that he supposedly supplied to Raj Rajaratnam (the evidence that he provided inside information at all was completely circumstantial) may have allowed Rajaratnam to enrich himself but Gupta himself never used that information. There was no evidence presented that Gupta enriched himself in any way; he didn’t trade on the information that he had and he never received anything of value from Rajaratnam (unless you consider Rajaranntam’s friendship to be valuable consideration). Surely that makes this case atypical of most insider trading cases and surely it suggests some leniency is called for.

    Professor Mead advocates that the harshest punishment should be inflicted on Gupta to serve as an example to other potential purveyors of the inside dope; his theory is that punishing Gupta severely will serve as a deterrent to others. It’s a logical guess on Professor Mead’s part but is there any actual empirical evidence that it’s true?

    Sometimes things that appear to be obvious turn out, on closer inspection, to be untrue. Most European nations have outlawed insider trading but the punishment they impose for the crime is dramatically less severe than we impose in the United States. Gupta could get 20 years in prison for his conviction although he will probably get considerably less. Three to five years is a likely sentence. See,

    But even that might be more than is called for. In Europe, for the same crime, Gupta would probably receive at most two years and in Great Britain, he would probably not be imprisoned at all.

    Is there any evidence that as a result of the harsher sentences handed out in this country that there is a lower prevalence rate of insider trading? If so, then harsh sentences may in fact, serve to deter the undesired behavior. On the other hand, if the harsher sentences handed out in this country don’t result in fewer incidents of insider trading than these sentences serve only the function of vengeance. The cogency of Professor Mead’s post rests on the answer to this question. Unless he has the evidence to back up his position, what we have here isn’t a post, it’s a rant.

    By the way, Charles R. Williams (#13, June 17, 2012 at 7:40 am) is precisely correct; the Justice Department is out of control. It was out of control during the Bush Administration (the Ted Stevens prosecution and the Scooter Libby prosecution) and its out of control during the Obama Administration (John Edwards prosecution). In fact, the misbehavior of the Justice Department in the Stevens case resulted in the Senators death. But for the conviction obtained against Stevens which was garnered through prosecutorial misconduct, the Senator would have been reelected and would have been in Washington, D.C. on the day of his death, not the plane that was fated to go down. The prosecutors who brought the case against Stevens really should be indicted for manslaughter. It wasn’t any better during the Clinton Administration (the Martha Stewart prosecution).

    This is a case where the libertarians get it exactly right; the body of federal criminal law is far too large and federal courts are involved in far too many criminal cases. The best place to cut the federal budget is by chopping in half the budget of the Justice Department. It might not make much of a dent in the deficit; but our country would be better for it, not worse for it.

    Federal judges at both the trial and appellate levels constantly complain about their workload. We don’t need to increase the resources (or pay) of the Federal Judiciary, we need to dramatically reduce the number of cases brought in Federal Court; the best place to start is with Federal criminal cases.

    Eliminating the ridiculous war on narcotics would allow us to slash the budgets of the Justice Department and the Federal Courts to a far more appropriate level.

    I sincerely doubt that it will make one iota of difference to security, justice or fairness in our nation whether Mr. Gupta goes to prison or not.

  • J R Yankovic

    Once again, gross over-reaction to these kinds of things on the part of Via Meadia. We all know how success in business – even hard- and for the most part honestly-earned success – is no ticket to sainthood (which actually may be a very solid argument, in these unprecedentedly prosperous times – e.g., what did those Biblical Ages REALLY understand about growth? – for a radical redefinition of sainthood). We also know that standing behind the counter of a business you’ve built up from nothing is IN ITSELF no very strong incentive against taking advantage of people. Success builds confidence, confidence in oneself can breed impatience with others’ lack thereof (and consequent lack of success), which can – maybe as often as not – translate into the power-tripping intellectual game of seeing how far you can go with STOOPID people. Including, once in a while (or so I’m told), your own customers, investors, clients, partners, etc.

    But may I politely ask, “So [profanity removed] what?” Why be so unduly hard on our highest achievers and producers? Thereby discouraging future dymanos from taking exactly the kinds of risks we may need to send our economies into permanent, irreversible overdrive?

    Any “bad” habit can become a craving. So why pick on this one, as against far less wealth-generating ones like obesity? Good heavens, even that glorious character-building discipline (building of your victims’ character, anyway) known as Abuse of Other People can become addictive. To the master, I mean, not to his disciples.

    Which is EXACTLY my point. In a competitive world, where (regardless of whether there is) there OUGHT to be neither time nor place for suckers, losers and weaklings, how do we know advantage-taking isn’t the best way of keeping ordinary, mediocre people sharp, alert, on their toes? What if our SURVIVAL as a species were to depend on it? Really, in such an incorrigibly turbulent universe as we continue to live in, how else would you expect a human presence to maintain itself in our solar system (or anywhere else, for that matter)? Is it only this and the next couple of generations’ happiness and “well-being” we have to think of? Or is it not also the greatness, and toughness, and limitless readiness to meet ANY challenge, of an indefinite posterity? Suppose, indeed, we could make that posterity INFINITE? That is, provided we were prepared to tolerate – or even encourage? – more of what this present morally stunted and spineless generation calls meanness, arrogance, predatory manipulation and spite? Wouldn’t it be a price worth paying? And all the more so if it meant leaving a truly indelible, unforgettable human mark on this universe? However we ourselves may finish up, won’t it be worth it if we can leave, to whomEVER comes after us, just enough noise, or grit in the teeth, or stench in the nostrils to let them KNOW we were here? (You know, I almost don’t think H G Wells could have put it better).

    Right now the above is, in my usual overblown fashion, the best I can offer by way of a Defense (of Social Darwinism) That Dare Not Speak Its Name. Not at the present time anyway (give it, I figure, maybe a decade or two). And needless to say – I hope – I’m not nearly as sanguine as the boldly visionary author of the first 4 paragraphs. At least about our human ability to see, plan, control and manipulate an apparently God-impervious universe. Oh, I’ll grant you, we may be just barely able to “pull it off.” But – call me a spineless pessimist – definitely not in ways we won’t agonizingly regret down the road (both of this life and the next).

    Behind such sharp practice as Via Meadia’s been highlighting is, I suspect, the fact that businesses are not mere profit-making machines. If they were, I’m sure I’d see – even on the other side of the retail counter (where I’ve met more than a few owners, managers and supervisors as well as peons) – not only more hospitality, but more humility, pleasantness and gratitude for such large or small regular patronage as I’m able to give. And all the more so – you’d THINK? – in these uncertain economic times. Whereas instead, as often as not, I find the familiar pattern taking over: Lots of high-to-medium achievers – some of them maybe just a pink slip away from starting their own business? – certainly SEEMING to think they’re better than me. And usually doing a pretty good impression of acting that way too. Mostly, the best I can tell, because they’ve got where they are, and I’m just – well, you know. But again, in THIS economy? One really has to admire the nerve.

    Finally I suspect that, precisely BECAUSE businesses aren’t just machines, they continue to be only as good as the people who own and run them. And sadly enough for our immediate future, most of these folks are only as good as the culture that inspires and motivates them. In other words, until our culture so evolves, that business is able to attract a better – and not just a smarter, cleverer, harder-working, more ambitious or more shamelessly self-promoting – class of people to its ranks, the maladies Prof Mead describes will continue to infect and debilitate.

    Then again, who knows – maybe they’re not maladies at all? Maybe they’re just what we as a species need to sur-VIIIIIII- yuv (I always feel that sacred word should be pronounced with at least 3 syllables) the next crazed comet or stray asteroid.

  • thibaud

    19: Kis – are you assuming there’s no growth in the cost of military hardware, military personnel salaries, oil etc?

    Again, this is about PERCENT OF GDP. Think about it.

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