Rajat Gupta has been sentenced to two years imprisonment and a $5 million fine. He has to report for prison by 2pm, 8 January 2013. He is appealing his verdict.
More than 400 people, including Bill Gates, former United Nations secretary general Kofi Annan, industrialist Mukesh Ambani and new age guru Deepak Chopra had written to judge Jed S. Rakoff requesting leniency. Many of the letter writers said that Gupta was the finest human being they had ever met. Gupta’s lawyers had proposed that instead of being sent to jail, Gupta should be ordered to perform rigorous community service in faraway Rwanda, where life would be hard, yet Gupta’s expertise would definitely help that ravaged nation in its war against AIDS, malaria and extreme poverty.
I’ve got hold of the 15-page sentencing order of judge Rakoff, a brilliant step-by-step exposition of how he arrived at what he believed was the right punishment for the crimes Rajat Gupta had been convicted of. It’s quite simply a magnificent piece of jurisprudence, upholding the spirit of the law, obeying every principle held sacred, and not for a moment losing sight of the true nature of the man who stood before him, awaiting judgement.
A bit of background on judge Rakoff first. A federal judge for 16 years now, he has, in recent times, become a sort of a hero by demanding greater accountability in cases of alleged Wall Street fraud. But he is much more than just a white collar criminal’s worst nightmare. He wrote his master’s thesis on Mahatma Gandhi. He has also worried publicly about concentration of wealth and economic power in the hands of a few, and has said that the US possibly suffers from “an over-glorification of capitalism”. Commenting on a profile of Rakoff’s in The Washington Post, a reader even proposed that this blunt, fearless and fair man should stand for President.
Rakoff begins Gupta’s sentencing order by saying that the Unites States Sentencing Guidelines (USSG), which set out a uniform sentencing policy for individuals and organizations convicted of felonies (by assigning points for various factors), cannot be used in this case. “The Sentencing Guidelines assign just 2 points to Mr. Gupta for his abuse of a position of trust—the very heart of his offence—yet assign him no fewer than 18 points for the resultant but unpredictable monetary gains made by others, from which Mr Gupta did not in any direct sense receive one penny.”
Instead, Rakoff said he would base his decision on a higher law, the United States Code, Title 18, Section 3553(a), which lays down factors to be taken into account while arriving at a sentence. The code mandates that while imposing a sentence, the court should consider the nature and circumstances of the offence and the history and characteristics of the defendant. The sentence should be sufficient, but not greater than necessary, to make sure of the following: that it reflects the seriousness of the offence, promotes respect for the law, provides just punishment for the offence, and protects the public from further crimes of the defendant.
“The nature and circumstances of the offence and the history and characteristics of the defendant” posed the fundamental problem of this sentencing, said Rakoff, “for Mr Gupta’s personal history and characteristics starkly contrast with the nature and circumstances of his crimes.” It was clear that Gupta was an extraordinarily good human being, who had selflessly devoted a huge amount of time and effort to a very wide variety of socially beneficial activities without fanfare or self-promotion. “The USSG virtually ignore this measure of the man,” said Rakoff, “…(But) on this day of judgment, must not one judge the man as a whole?”
Yet Gupta was certainly guilty of crimes that, “by any measure... represented the very antithesis of the values he had previously embodied.”
“So how does a court balance these polar extremes?” asked Rakoff. By turning to the further mandates of Section 3553(a). The sentence should afford specific and general deterrence. “As to specific deterrence,” said Rakoff, “it seems obvious that, having suffered such a blow to his reputation, Mr Gupta is unlikely to repeat his transgressions, and no further punishment is needed to achieve this result. General deterrence, however, suggests a different conclusion. As this Court has repeatedly noted in other cases, insider trading is an easy crime to commit but a difficult crime to catch. Others similarly situated to the defendant must therefore be made to understand that when you get caught, you will go to jail. Defendant’s proposals to have Mr Gupta undertake various innovative forms of community service would, in the Court’s view, totally fail to send this message. Moreover, if the reports of Mr Gupta’s charitable endeavours are at all accurate, he can be counted on to devote himself to community service when he finishes any prison term, regardless of any order of the Court.” Through this flawless interpretation of the statutes in terms of the specific case of Gupta, Rakoff dismissed the notions of penitence in Rwanda.
“At the same time,” Rakoff admitted, “no one really knows how much jail time is necessary to materially deter insider trading; but common sense suggests that most business executives fear even a modest prison term to a degree that more hardened types might not. Thus, a relatively modest prison term should be ‘sufficient, but not more than necessary’, for this purpose.” In other words, if Gupta was sent to prison for a very short period, it would be enough to serve as a general deterrent.
But there was also the matter of “just punishment”. “Human beings, as social animals, are programmed to respect moral values,” said Rakoff. “…As people have come to understand that insider trading is not only a sophisticated form of cheating but also a fundamental breach of trust and confidence, they have increasingly internalised their revulsion for its commission. While no defendant should be made a martyr to public passion, meaningful punishment is still necessary to reaffirm society’s deep-seated need to see justice triumphant.”
This was then the sentence. “Rajat K. Gupta is therefore sentenced to 24 months’ imprisonment, concurrent on all counts, to be followed by one year of supervised release, on the terms stated from the bench and here incorporated by reference. The otherwise mandatory forfeiture has been waived by the Government, but Court imposes a fine in the sum of $5,000,000.”
Rakoff has lived up to his reputation, and even the brilliant Rajat Gupta would be hard-pressed to find a single flaw in the judge’s logic. It is that rare and valuable thing—a truly just sentence.
Sandipan Deb’s book “Fallen Angel: The Mystery of Rajat Gupta” will be published in November.