Q&A | Former Prosecutor Says Feds Had Gupta in Their Crosshairs

An ex-board member of Goldman Sachs and Procter & Gamble, Rajat Gupta, pleaded not guilty to acting as "the illegal eyes and ears in the boardroom" for a billionaire hedge fund manager who was sentenced this month to 11 years imprisonment in the biggest insider trading case in U.S. history. Prosecutors have obtained dozens of convictions for other defendants in related cases. WNYC asked former federal prosecutor Robert Mintz to explain the charges against Gupta.

Q. Prosecutors say they have evidence in the form of wiretaps, call logs and trading records that show Gupta passed confidential information on many occasions to his friend and business partner, Raj Rajaratnam. What argument will the defense make?

A. No doubt one of the first steps they take will be to try to bar the admissibility of these tapes, because in many ways they form the backbone of the government’s prosecution.

Beyond that, the defense has already signaled that they are going to make the argument that Mr. Gupta never personally profited from any of these alleged trades and that therefore he had no motivation to pass along inside information that was inappropriate and illegal.

Q. Do you need to profit from passing inside information in order for it to be considered a crime?

A. The government will argue that Mr. Gupta didn’t need to personally profit from the information he passed along. They will try to show that the tips that Mr. Gupta allegedly passed to Mr. Rajaratnam were then used by Mr. Rajaratnam in order to trade and gain financially.

Q. This is latest and biggest wrinkle in a long-running big probe into insider trading. Dozens of people have already been convicted, including Rajaratnam. Where do you see this going?

A. I think it’s difficult to predict exactly where this investigation will ultimately lead. But it’s clear that prosecutors are not shying away from going after some very big fish, and making a point of trying to send a message to those who would consider trading on inside information that no matter how powerful and well connected somebody is, prosecutors will bring charges if they believe they can win the case.
Q. What kind of sentence could Gupta face if he is convicted?

The sentence that ultimately somebody might receive in an insider trading case is largely determined based upon the amount of profit that was generated from the illegal trade. So in the event that there’s a conviction here, and Mr. Gupta is ultimately sentenced, he may be facing substantial time if prosecutors can demonstrate that as a result of his allegedly illegal tip of information, Mr. Rajaratnam was able to profit substantially from that information.

A. The alleged crimes happened in 2008 and 2009 as the financial crisis was unfolding. Yet insider trading was not really a cause of the meltdown. Some have even argued it’s a victimless crime. Is this the right case for prosecutors to be bringing at this time?

Q. Certainly insider trading can be a very serious crime, and it does go to the question of whether or not there’s real integrity in the marketplace, and whether people who have access to certain information are using that information to gain unfair advantage.

But in the mind of the public, I think there is still a real concern that the financial meltdown, which hurt so many people in such a very direct way, has never been adequately pursued by the Department of Justice. And we’ve really seen very few prosecutions that deal directly with some of the concerns that the public have over some of the conduct that may have contributed to the meltdown.

These cases, while they are important don’t directly link to the financial meltdown, and that’s why I think a lot of people are looking at these cases as being important but still longing for the Department of Justice to pursue other prosecutions that may have played a more direct role in causing some of the harm to the general public.

Robert Mintz was an assistant U.S. Attorney for the District of New Jersey for nine years, and now represents white-collar defendants. He is a partner at McCarter & English in Newark.