India-born former Goldman Sachs director Rajat Gupta's bid to overturn his conviction on insider trading charges was on Tuesday rejected by a US court which sentenced him to two years in prison.
The US Court of Appeals for the Second Circuit in its order today rejected Gupta's bid and said, "We have considered all of Gupta's arguments on this appeal and have found them to be without merit. The judgement of the district court is affirmed," the order said.
65-year-old Gupta was found guilty in June 2012 of securities fraud and conspiracy to commit securities fraud.
He was charged with passing confidential boardroom information about Goldman Sachs to now jailed hedge fund founder Raj Rajaratnam.
The district court recognised that given Gupta's "rise tothe pinnacle of his profession" as head of global consulting firm McKinsey and his "nearly unparalleled level of access to upper echelons of corporate executives" throughout the world "creates the risk that, notwithstanding his fall from grace, he remains well-placed to repeat his misconduct in the future.
"Enjoining Gupta from further securities law violations was a permissible exercise of discretion given Gupta’s securities fraud conviction.
Barring Gupta from serving as an officer or director was also reasonable because Gupta's tipping of inside information he obtained as a director was an egregious abuse of trust that demonstrates his lack of fitness to serve in that capacity.
"And enjoining Gupta from associating with brokers, dealers, or investment advisors is appropriate because Gupta’s conviction arose out of his association with Goldman Sachs, the holding company of a constellation of broker-dealers and investment advisors," the SEC said, adding that the judgment of the district court should be affirmed.
Gupta's lawyers have argued that instead of protecting the investing public, the injunctions imposed on him by the district court "serve only to punish and stigmatize Gupta."
He has been convicted in a parallel criminal insider trading case brought against him by India-born federal prosecutor Preet Bharara.
He was sentenced to two years in prison but has appealed against his conviction and is awaiting the decision of the appeals court while on bail.
The district court concluded that when Gupta tipped inside information obtained from his "privileged access to information" as a director, he was "guilty of an egregious breach of trust...This conclusion supports the district court’s discretion to order injunctive relief because there is a reasonable expectation of future violation where the defendant’s prior violations were egregious," the SEC said.
The district court found that, even over a year after his conviction on multiple counts of insider trading, Gupta failed to recognise that his conduct was "improper".
Gupta's repeated argument that he himself made no money from any of the trades is "inconsequential" since his misconduct "created substantial losses or the risk of substantial losses to other persons," even if he did not pocket any direct gains.