Back in 2012 Rajat Gupta was sentenced to 2 years gaol in New York for insider trading. He appealed, of course. But that failed. So last week off he went to a friendly gaol nicknamed Club Fed (where he can have visitors for 6 hours every Friday and all sorts of other comforts). If he’s a good chap, he could be out for Christmas next year.

Never heard of him? … Neither had I until recently, but he’s a big hitter. Former head of a big Russian bank, and former global head of McKinsey & Co, probably the world’s most prestigious strategic consulting firm. A man with a stellar career in business.

Also, one of the .01% with friends in high places.

At his trial, Bill Gates, Kofi Annan (and we all know who they are) and “hundreds” of others gave him glowing character references for his otherwise “exemplary life” and his extensive philanthropy, according to the Wall Street Journal … Nice how the elites look after each other, isn’t it.

So what did Gupta get up to?

He was a director of that pillar of Wall Street, Goldman Sachs. 23 seconds after a Board meeting in 2008 he called a mate with the tip that Warren Buffett of Berkshire Hathaway was about to pump $5 billion into Goldman to help prop it up during the financial crisis. His mate Raj Rajaratnam, head of hedge fund Galleon, made a least a million off that one phone call.

Gupta was also on the Board of Proctor & Gamble, and apparently he told his mate Raj about secret P&G stuff too.

According to the WSJ:

[Gupta’s] tip about Berkshire Hathaway Inc.’s impending investment to shore up Goldman during the crisis was “disgusting in its implications” and “a terrible breach of trust,” said Judge Rakoff before he handed down the sentence. He added: “Others similarly situated to the defendant must…be made to understand that when you get caught, you will go to jail.”

(Great name for a judge, that … Rak off!)

Investigators couldn’t find any evidence that Gupta made any money out of dispensing this insider information to Raj. Gupta claims he didn’t. He says he did it all out of friendship with Raj … Well of course! Isn’t that what friends do?

But this shows (yet again) that you need to be careful choosing your friends. Gupta’s insider information was discovered during investigation of the huge network of trading information sources that Raj Rajaratnam and the Galleon fund used to benefit themselves at substantial cost to others. Raj is now also in gaol for an 11 year stretch (in another Club Fed of course) for many insider trading offences.

Pity the poor Feds. Insider trading is insidious, and I suspect, rife. It’s all too easy (and tempting) for one person A to quietly tell another person B an insider secret and for B to go into the market and buy or sell to profit from that information. And all too easy for A to then get a kick back from B. The perpetrators are always mates and cooperate. The victim is an amorphous, faceless mass of people, not in on the secret, called “the market”: those that trade, oblivious to what’s really going on behind the scenes. This anonymity is the characteristic of the victims that makes it so easy for otherwise “exemplary” people to justify to themselves doing what they do.

Gupta and Raj got caught. I suspect they are a tiny fraction of the perpetrators. Here’s some data from the Wall Street Journal. You be the judge about who’s in front: the insider traders or the Feds pursuing them? And, when they do catch one, does the punishment fit the crime?

Under Manhattan U.S. Attorney Preet Bharara, 72 people have been charged with insider trading since late 2009, and 69 have pleaded guilty or been convicted.

So far, 37 of those people have been sentenced to a total of roughly 68 years in total prison time.