NEW YORK — Rajat Gupta, the retired head of the consulting firm McKinsey & Co. and a former Goldman Sachs board member, was found guilty Friday of conspiracy and securities fraud. He is the most prominent business executive convicted in a wave of prosecutions that followed the government’s sweeping investigation into insider trading on Wall Street.
After a monthlong trial in U.S. District Court in Manhattan, a jury took only two days to deliberate before reaching a verdict. It found Gupta guilty of leaking confidential information about Goldman to his former friend and business associate, fallen hedge-fund titan Raj Rajaratnam, on three occasions in 2008. He was also convicted of conspiring in an insider-trading scheme with Rajaratnam.
Gupta was found not guilty of two instances of tipping Rajaratnam, including an allegation that he divulged secret news about Procter & Gamble, where he also served on the board.
“Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell,” Preet Bharara, the U.S. attorney in Manhattan, said in a statement. “Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief.”
After the verdict was read in the courtroom, Gupta, 63, remained stoic, his face expressionless. Just behind him, his wife, Anita, buried her head in her hands, leaning against a bench. His four daughters, who had squeezed into the front row of the spectators’ gallery each day during the trial, loudly sobbed and consoled one another. Several jurors were crying as they left the courtroom.
Gary Naftalis, a lawyer for Gupta, said his client would likely appeal the verdict.
“We believe the facts of this demonstrate that Mr. Gupta is innocent, and we continue to believe he is innocent of all the charges,” Naftalis said. “This is only round one of this matter.”
Jed Rakoff, the judge in the case, said he was inclined to set Gupta free on bail until his sentencing Oct. 18.
Gupta faces a maximum sentence of 25 years in prison but will probably serve less time than that. Rajaratnam, the former head of the Galleon Group hedge fund who was convicted of orchestrating a huge insider-trading conspiracy last year, is serving an 11-year jail term.
Gupta is one of the 66 Wall Street traders and corporate executives charged with insider-trading crimes by Bharara, since 2009. Of those, 60 have either pleaded guilty or been found guilty.
Juries have now convicted all seven whose cases have gone to trial.
The outcome in Gupta’s trial was a substantial victory for the government. There had been a big question mark whether prosecutors could win a case built largely on circumstantial evidence — phone records and trading logs — of the defendant’s guilt. No witness testified to the contents of any calls between Gupta and Rajaratnam. The case lacked the dozens of incriminating wiretaps that prosecutors played at Rajaratnam’s trial.
The jury appeared to reject one of Gupta’s central defenses: That it was inconceivable that a person of Gupta’s station would risk destroying his career by passing along a handful of boardroom secrets.
To bolster this point, the defense put on six character witnesses who told the jury about Gupta’s sterling reputation, unimpeachable integrity and extensive charitable works.
“Having lived a lifetime of honesty and integrity,” Naftalis said in his opening statement, “he didn’t turn into a criminal in the seventh decade of an otherwise praiseworthy life.”
Yet the government, which was represented by federal prosecutors Reed Brodsky and Richard Tarlowe, countered with powerful, if at times tedious, evidence that Gupta brazenly divulged confidential discussions by the boards of both Goldman and P&G to Rajaratnam.
The case has been a major embarrassment for the executives at McKinsey, which Gupta ran from 1994 to 2003. A trusted adviser to Fortune 500 companies, McKinsey counts among its alumni Sheryl Sandberg, the chief operating officer of Facebook, and James Gorman, the chief executive of Morgan Stanley.