On October 25th, 2012, Rajat Gupta, former director of Goldman Sachs Group Inc. was sentenced to two years in federal prison for leaking insider information. Just last year, he was charged with giving tips about Goldman and Procter and Gamble. In June, the jury found Mr. Gupta guilty on three counts of securities fraud and “one count of conspiracy for giving Mr. Raj Rajaratnam tips about Goldman during the financial crisis, sometimes just moments after he learned of them, including that Warren Buffett’s Berkshire Hathaway would invest $5 billion in the bank in 2008” (Rothfeld). Prosecutors argued that Mr. Rajaratnam was able to make millions of dollars for Galleon with the information. Mr. Gupta was still able to make money as a result of his business connection with Mr. Rajaratnam, even though he did not make any trades himself.
Even though Rajat Gupta was sentenced to prison, he did receive several letters in his support. Even Microsoft Corp. co-founder Bill Gates wrote, saying that “because he had lived an otherwise exemplary life and given many years to health-care, poverty, education and other philanthropic causes”, the judge should not give him such a harsh sentence (Rothfeld).
Is it acceptable that Mr. Gupta gave tips away to other companies although he did not trade on the information himself? Also, should he be given a short sentence just because he “gave back” to the community?
I believe that the federal government should take the strictest position possible in dealing with people like Mr. Gupta, but only to a certain point. The U.S. District Judge Jed Rakoff was justified in sentencing him to the fullest extent for giving tips about his company to others, especially during times of economic difficulty, and he was simply guilty of those charges. However, there may be some negative effects of harsh punishments in terms of whistleblowers. The stiffer the penalty, the more guilt whistleblowers may feel about coming forward, making them more reluctant to help catch criminals. Punishing offenders of insider trading to the extent that covers for the damages that they caused is sufficient – harsher action might do more harm than good. This way, competition in the market would be fairer because others in management would know exactly what will happen to them if they try to cheat their way through the system. Furthermore, limiting excessive punishment will provide for a comfortable enough environment where whistleblowers would be more willing to expose frauds.
While Mr. Gupta did devote part of his time to philanthropic causes, the prison sentence given was based on his guilt and the amount of money that was involved. This sentence was fair in the utilitarian sense, where the results were what defined whether or not his actions were ethical, thus legal (Brooks and Dunn). Ethicality here is assessed on the basis of non-ethical consequences, and the judge must be impartial when calculating the overall net probable consequences of a decision. In addition to the money, Mr. Gupta divulged the tips based on self-interest – which according to Thomas Hobbes and Adam Smith is what drives people to generate economic growth even with great risks involved (Brooks and Dunn). Even though Mr. Gupta may have cared about his own company, his self-interest to make a profit may have hurt the company by decreasing profits because his tips might have allowed others to manipulate the system and take the profits that Goldman Sachs were supposed to earn. The regulators took the appropriate actions.
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Rothfeld, Michael, and Dan Strumpf. “Gupta Gets Two Years for Leaking Inside Tips.” (n.d.): n. pag. The Wall Street Journal. The Wall Street Journal, 25 Oct. 2012. Web. 2 Nov. 2012.