Mr. Gupta. (World Economic Forum/Michael Wuertenberg)

One day after corporate chieftain Rajat Gupta was sentenced to two years in prison after his conviction on insider trading charges, a different judge sentenced a former AT&T employee who pleaded guilty to sharing privileged information with investors to one year's jail time.

Alnoor Ebrahim, who pleaded guilty in June to sharing sales information for AT&T handset devices, including the iPhone and Blackberry. Mr. Ebrahim, who was sentenced by Judge Paul J. Oetken, was paid more than $180,000 for his work with expert network Primary Global Research, which consisted of hundreds of calls with the firm's clients.

While Mr. Ebrahim role at AT&T was as an "associate director of channel marketing," according to a press release from U.S. Attorney Preet Bharara, Mr. Gupta is a former chief executive officer at consulting firm McKinsey & Co., charged by the government with passing information gained through his standing as a director on the board of Fortune 500 companies with hedge fund manager Raj Rajaratnam.

There are other notable differences. Mr. Gupta was convicted after a jury trial (though Judge Jed Rakoff, who presided over the case, said at Mr. Gupta's sentencing hearing that he wouldn't hold that fact against the defendant) and was found by the jury to have committed insider trading in a pair of isolated instances. He also had the benefit of a top-flight attorney in Gary P. Naftalis, who marshaled Mr. Gupta's friends and acquaintances to mount a letter-writing campaign extolling Mr. Gupta's good works.

Perhaps most important is that Mr. Gupta didn't profit directly from insider trading, said Kevin O'Brien, a former U.S. Attorney and partner at NYC Harris, O’Brien, St. Laurent & Houghteling. "Gupta was such a weird case because he didn't profit," he told us. "If you're doing it for money, you can be deterred by penalties. But if you're doing it for status of prestige, it's almost non-deterrable."

World Economic Forum/Michael Wuertenberg

Rajat Gupta, the former chief executive officer of McKinsey & Co., was sentenced to two years imprisonment for insider trading this afternoon during a hearing presided over by Judge Jed Rakoff at the U.S. Southern District courthouse.

Mr. Gupta, who was convicted in May of using his position on the board of directors at Goldman Sachs to pass privileged information to Galleon Group hedge fund manager Raj Rajaratnam, has sought probation in lieu of imprisonment. The government recommended a jail term of eight to 10 years.

“With today’s sentence, Rajat Gupta now must face the grave consequences of his crime," said U.S. Attorney Preet Bharara in an emailed statement. "His conduct has forever tarnished a once-sterling reputation that took years to cultivate. We hope that others who might consider breaking the securities laws will take heed from this sad occasion and choose not to follow in Mr. Gupta’s footsteps.”

In arguing for a lighter sentence, Mr. Gupta's attorney Gary P. Naftalis  reiterated his client's "extraordinary" philanthropic record, reading from letters written on behalf of the former corporate chieftain, and argued that Mr. Gupta's fall from grace was punishment enough for his crimes.

"He had one of the best reputations on the planet," said Mr. Naftalis at today's hearing, which The Observer attended from an upstairs spillover room at the downtown Manhattan courthouse. "His reputation was a lot more important than any amount of money could be."

Judge Rakoff acknowledged Mr. Gupta's humanitarian record, but said that insider trading was "easy to commit, hard to catch," and that the need for deterrent was strong.

The effect of Mr. Gupta's crime, said Judge Rakoff, was "to place in jeopardy the integrity of the marketplace, one of the greatest assets this country possesses."

Mr. Gupta is generally considered to be the most prominent figure to be convicted during the government's ongoing crackdown on insider trading, which has netted more than 70 convictions or guilty pleas over the last three years. Mr. Rajaratnam, the hedge fund manager at the hub of many of the Justice Department's recent insider trading cases, is currently serving an 11-year prison sentence.

Mr. Gupta was also fined $5 million.

What's funny about that? If you've been following the trial at all, you know that the government's insider-trading case against Rajat Gupta hangs in large part on charges that the former McKinsey & Co. CEO used his standing on Goldman's board of directors to pass lucrative secrets to Raj Rajaratnam.

And if you've been following the case especially closely, you may know that in 2006, after leaving Goldman, Mr. Schwartz helped found an investment fund called Taj Capital—later renamed New Silk Road—the same fund that counted Raj Rajaratnam and Rajat Gupta among its investors.

Which, of course, is not to say that Mr. Schwartz was mixed up with either of those scoundrels. As The New York Times reports, Mr. Schwartz left New Silk Road almost as soon as he got there—his tenure was so brief that Goldman didn't mention its press release today. (Short tenure had to be it, right?) But in a trial sometimes short on entertainment value—we miss you Lloyd!—you take it where you can.

Meanwhile, in more pertinent Southern District news, Judge Rakoff disallowed a pair of wiretaps that Mr. Gupta's defense had hoped would show that a Goldman executive named David Loeb had supplied Mr. Rajaratnam with inside dope. In turn, the defense rested, and closing arguments begin tomorrow.

“We have the spent the last day reviewing what we believe we need to present in the defense case,” Mr. Naftalis wrote. “After substantial reflection and consideration, we have determined that Mr. Gupta will not be a witness on his own behalf in the defense case.”

That news marked a change in course, according to The New York Times, which reports that Mr. Naftalis told the court last week it was "highly likely" that the defense would call Mr. Gupta to the stand. On the other hand, it may simply mark Mr. Naftalis' decision to discard an oft-used red herring.

"If you want your adversary to waste time preparing for a cross-examination, you might make them think that you're going to call the defendant," Columbia law professor John Coffee told us about a week ago, during a call to discuss the challenges of prosecuting white collar crimes. "It he took the stand it would be make-or-break, and I don't see a veteran counsel like Mr. Naftalis going through with it."

With Mr. Gupta off the docket, closing arguments could begin as soon as tomorrow.

[World Economic Forum/Michael Wuertenberg]

Shirley Shepard/AFP/GettyImages

As we remarked this morning, the wheels of justice have been turning slowly in the insider-trading trial of Rajat Gupta, the former McKinsey & Co. chief executive accused of funneling corporate secrets to Galleon Group hedge fund manager Raj Rajaratnam.

Indeed, so slowly that Judge Jed Rakoff has exhorted attorneys to liven up proceedings, and taken matters into his own hands when counsels failed to comply. (Most recently, Judge Rakoff traded quips with noted cornball and Goldman Sachs CEO Lloyd Blankfein.)

On Monday, His Honor went one step further, sending a U.S. marshall to put the heat to an overeager law student who's been hanging around the courtroom in recent weeks. As The New York Times' Peter Lattman reports today, Benjamin M. Cardozo Law School student Benula Bensam thought it would be interesting to witness a white collar trial. She'd studied the federal rules of evidence, and besides, she hadn't managed to land a summer job. Even a boring day in court beat hanging around Woodside.

But attending court and writing letters to the judge are two different matters, apparently. Per The Times:

On Monday afternoon, as the jury listened to testimony from Lloyd C. Blankfein, the chief executive of Goldman Sachs, a United States marshal approached Ms. Bensam in the spectator’s gallery and asked her to leave the courtroom. She said that several marshals then took her into a room and accused her to trying to improperly influence the judge.

“That was certainly not my intention,” said Ms. Bensam, who lives in Woodside, Queens. “They were very aggressive and totally misconstrued what I was trying to do.”

The judge, it turned out, was worried that the notes could create the perception that Ms. Bensam was trying to influence the case.

Adjourned.

Lloyd Blankfein testifies at the insider trading trial of Rajat Gupta (r.) as Judge Jed Rakoff looks on. (Shirley Shepard/AFP/GettyImages)

For anyone who’d like to see the bank executives who led America into the teeth of the financial crisis strung up by the laces of their Prada wingtips, a trip to the Southern District courthouse in Lower Manhattan may be a deflating experience.

The Observer had come to the federal courthouse seeking succor. Late last month, Reuters laid hands on an internal memo from the Securities and Exchange Commission declaring its investigation into Lehman Brothers was unlikely to lead to criminal charges. In the time it took Dick Fuld to type “the Bros always wins!!” the SEC was feeding reporters the company line: Lehman prosecutions were still a possibility.

That claim became harder to credit this weekend, alas, when SEC enforcement director Robert Khuzami told C-Span cameras that the worst crisis-era bets on souring mortgage bonds were made below the level of the executive suite. (Hmm. Did someone forget to eat his Wheaties?)

U.S. v. Gupta was supposed to be another story. Southern District U.S. Attorney Preet Bharara has been on an insider-trading tear, after all, winning convictions or guilty pleas in 59 of the 66 cases his office has brought since 2009. In the most high-profile case, the government gained an 11-year sentence for Raj Rajaratnam, the billionaire hedge fund manager caught paying corporate insiders to convey privileged information.

Rajat Gupta was among those who supplied Mr. Rajaratnam inside dope, the government said, alleging the former Mc-
Kinsey & Co. chief executive used his standing as a board director at such corporations as Goldman Sachs and Procter & Gamble to pass secrets to Mr. Rajaratnam’s Galleon Group. In one damning-if-true instance, the government says Mr. Gupta telephoned Mr. Rajaratnam minutes after learning that Warren Buffett’s Berkshire Hathaway was primed to invest $5 billion in Goldman Sachs. Galleon bought Goldman stock—and turned a quick million-dollar profit.

But securities law, it turns out, is not the best fuel for populist outrage. We knew that white-collar prosecutions were notoriously hard to win, that wealthy defendants could spend vast sums on defense lawyers, that the complexities of financial cases could wilt the attention of the perkiest juries. It wasn’t until we’d planted ourselves on the hard wooden pews at 500 Pearl Street that we felt the full gravity of the conventional wisdom.

The resource gap between defense and prosecution was clear on the first day of the trial, when four attorneys from Kramer Levin Naftalis & Frankel huddled in the courtroom with an outside jury consultant, even as junior lawyers back at the firm’s Midtown offices poured over a real-time feed of the trial transcript. The prosecution objected. Surely it wasn’t fair for the defense to employ muscle outside the courthouse to research potential jurors’ names? They might as well outsource the voir dire to a team of freelance Facebook trawlers in Bangalore! But Judge Jed Rakoff—the same cranky legalist who’s made a reputation for hard treatment of financial institutions—allowed the outside help.

It got worse. Though the charges against Mr. Gupta are particularly egregious—a board director at Fortune 500 companies stepping out of a confidential meeting to funnel stock tips to a hedge fund manager is about as morally offensive as insider trading can get—the evidence is largely circumstantial. In its case against Mr. Rajaratnam, the government had smoking-hot wiretaps and corroborating witnesses to prove their case. It still took jurors a week to return a guilty verdict.

The evidence in Gupta was flimsier: witness testimony and phone records indicate that Mr. Gupta and Mr. Rajaratnam spoke around 3:55 p.m. on the day Mr. Buffett announced his Goldman stake, for instance, and in a wiretapped call the next day Mr. Rajaratnam told a Galleon trader that he’d received a tip that  “something good might happen to Goldman.” In a wiretapped call a month later, Mr. Rajaratnam told another trader that “I heard yesterday from someone who’s on the board of Goldman Sachs that they’re going to lose $2 a share, the market has them making $2.50.”

It wasn’t hard to connect the dots, but that doesn’t mean a jury will try.

The defendant, meanwhile, had the best lawyers money could buy poking holes in the government’s case. Since Gary P. Naftalis left a post as a Southern District prosecutor more than three decades ago, he’s been tapped by everyone from Kidder Peabody and Salomon Brothers to Michael Eisner and the former-CEOs of Arthur Andersen and WorldCom. The Times has dubbed Mr. Naftalis “Columbo with a law degree” for the lawyer’s disheveled looks and folksy sense of humor. In Judge Rakoff’s courtroom, Mr. Naftalis appeared as if he’d just stepped out of a rainstorm (it wasn’t raining). The Observer wasn’t fooled, of course, but we were a little bit charmed and certainly discouraged.

Mr. Naftalis is the type of lawyer you get when you have millions in the bank and a strong desire to stay out of prison. He’s the kind of lawyer that the prosecutors on the case, Reed Brodsky and Richard Tarlowe, may dream of one day becoming.

Mr. Naftalis’s goal was to blow some smoke, and he proved adept at it.

“If you’re the defense, the normal procedure is to get the jury confused and bored,” John Coffee, a Columbia law professor, told us. “If they’re bored, they miss the smoking gun when it’s produced. If the defense can get the legal issues convoluted, the jury is unlikely to send a man away over issues they can’t understand.”

He added: “I’ve testified as an expert witness in securities cases and looked over and actually seen jurors sleeping.”

“It’s part of the reason that there are so few criminal prosecutions,” said Steve Thel, a professor at Fordham Law. “Prosecutors are reluctant to take on complicated cases.”

Those selected to sit in judgment of the Gupta case included a registered nurse, an elementary school teacher and a freelance beauty consultant. “I am in awe of our jury because they have managed to remain attentive,” Judge Rakoff said last week, urging lawyers on both sides to make things more interesting.

Assistant U.S. Attorney Brodsky started dumbing down the financial lingo with his very first witness, asking Mr. Rajaratnam’s former executive assistant to define a hedge fund. “It’s a place where stocks are traded,” the witness answered. And we thought it was the loose bills our Auntie Vera keeps stashed in a coffee can to pay for gardening supplies! The next day, Assistant US Attorney Tarlowe asked a witness what an index was. “It’s a stock made up of other stocks,” came the reply.

At least the defense left those definitions uncontested. On day three of the trial, the defense unleashed a barrage of objections to Mr. Tarlowe’s examination of the trader who executed Mr. Rajaratnam’s infamous Goldman trade.

“What does it mean to raise $2.5 billion in a common stock offering?” Mr. Tarlowe asked.

“Objection,” offered the defense. Sustained.

“What is your understanding of what it means to raise $2.5 billion in a common stock offering?” Mr. Tarlowe reworded.

“Objection,” said the defense. Sustained.

“Do you know how a stock offering works?” Mr. Tarlowe attempted.

“Yes,” said the witness.

“How do you know?” asked Mr. Tarlowe.

“Objection.”

“Was that objection on foundation or relevance?” Judge Rakoff chimed in. “Foundation and relevance,” Mr. Naftalis quipped, turning to the press gallery, “and whatever else we can think of.”

There were other moments of drama. After one cross-examination, Mr. Naftalis exclaimed “Got him!” loud enough for the jury to hear. On another occasion, the defense counsel made a thumbs-up as he walked away from the witness stand. Mr. Brodsky complained about the grandstanding. Mr. Naftalis complained about Mr. Brodsky’s treatment of a witness. “I think we’re down to a very polite form of name-calling and that’s not what I want to hear from either counsel,” Judge Rakoff scolded, but the defense had gotten the better of the exchange.

Prosecutors don’t generally try cases they can’t win, and the government may have a key element on its side. “Juries pick up signals from the judge,” said Mr. Coffee. “If the judge is leaning one way or another, the jury tends to lean in the same direction.” Judge Rakoff has developed a reputation in recent years as a thorn in the side of financial firms, most recently blocking an SEC settlement with Citigroup and chiding the watchdog for letting the bank off the hook without either a fine or an admission of wrongdoing. “The most disturbing thing about this case is what it says about business ethics,” Mr. Rakoff told the courtroom in the Gupta case. “It’s not a case of one bad apple, but a bushelful.”

Nor would we trivialize the government’s efforts. If Mr. Gupta used his position as a corporate director to feed Galleon Group profitable secrets, Mr. Gupta should go to jail. But we confess to having held out hope, in whatever naïveté, that the government still had bigger fish to fry. After all, Lehman’s bankruptcy examiner Anton R. Valukas reported that Lehman Brothers moved up to $50 billion in bad assets off the firm’s balance sheet in so-called Repo 105 transactions, concealing the bank’s failing state from shareholders and regulators alike. The SEC is pursuing cases against senior officers at Fannie Mae and Freddie Mac, but the claims seem to stop short of criminalizing the mortgage giants’ role in the foreclosure crisis. Indeed, whatever the government’s chances in Gupta—Mr. Coffee handicapped the trial at 60-40 in favor of a conviction—our visit to Judge Rakoff’s courtroom didn’t do much to engender hope of bigger cases.

There’s another challenge to securing convictions in white-collar cases: tangible victims are often lacking. Indeed, it was Mr. Gupta—a silver glint in his combed-back hair, mouth frozen in a dignified grimace—who gave off the air of the wronged party. Behind him sat two benches full of supporters, often including his daughters, who looked just as polished as you would expect from a foursome who holds seven Ivy League degrees. What’s that you say? What about the shareholders in the firms Mr. Gupta allegedly betrayed, or the taxpayers who propped up failing financial institutions?

We suppose those victims were everywhere in the Southern District courthouse, whether they realized it or not.

pclark@observer.com

Questions for Jamie: Andrew Ross Sorkin has some questions for Jamie Dimon ahead of the JPMorgan chief executive's visit with the Senate Banking Committee on June 13. The hearing should be used as an opportunity to draw out information on the risks in the U.S. banking system, and not merely another performance of "Washington Gotcha Theater."

JPMorgan may report a second-quarter loss of $4.2 billion in its chief investment office, ISI analyst Ed Najarian said in a research note.

Whither Europe: A Spanish budget minister urged European leaders to move faster to support Spain's floundering banks, noting that spiking borrowing rates left Spain effectively locked out of capital markets.

Shall we lunch? Goldman Sachs CEO Lloyd Blankfein testified in the insider trading trial of former-McKinsey & Co. boss Rajat Gupta yesterday, but The Times reports the testimony was largely uneventful. The lone bright spot? Mr. Blankfein asked if the court would schedule the continuation of his testimony around a lunch the bank boss had planned for his daughter's high school graduation. The Blankfeins' reservation was for a restaurant in Yonkers, where Judge Jed Rakoff lives. Did His Honor know the place? “If it’s the one I’m thinking of, I can’t afford it,” Judge Rakoff said.

KKR brass tops list: Henry Kravis was the most highly paid executive at large U.S. financial firms last year, earning $30 million in salary and other compensation, while partner George Roberts was second at $29.9 million, according to Bloomberg Markets Magazine. Mr. Kravis and Mr. Roberts, founding partners of KKR, the private equity firm that went public in 2010, took home an additional $64.2 million in dividends and other distributions accrued to their stakes in the company.

Emerging market: Steve Wynn's newest Macau casino will cost $4 billion to build, even as the island-gambling destination reported slower revenue growth.

Banker passes: Marion O. Sandler, the pioneering Wall Street woman who built Golden West Financial into one of the largest thrifts in the country, is dead at 81. Ms. Sandler and her husband Herbert sold Golden West to Wachovia in 2006, and came in for a share of blame when the bottom fell out of the U.S. housing market. The Sandlers sank much of the $2.4 billion they reaped from the Golden West sale into charities, The Times reports, including ProPublica, the investigative journalism outfit.

Judge Jed Rakoff. (The Washington Post)

After 16 years presiding over white collar cases in the U.S. District Court's Southern District, you'd think Judge Jed Rakoff would be hard to disallusion. Not so. It only took six days for the insider trading trial of Rajat Gupta—the former McKinsey & Co. CEO accused of tipping Galleon Group hedge fund manager Raj Rajaratnam to sensitive corporate secrets—to cause Mr. Rakoff to hang his head in dismay."The most disturbing thing about this case is what it says about business ethics," Mr. Rakoff said. "It's not a case of one bad apple, but a bushelful."The judge was in the process of deciding whether to admit records of a phone call between the offices of McKinsey and Galleon into evidence: The government said the call helped show that Mr. Gupta leaked word that Procter & Gamble planned to sell its Folgers coffee unit; The defense said Mr. Gupta was on another call at the time and besides, there were other potential tipsters, a bushelful, even.

Handwringing complete, Mr. Rakoff concluded there was a "preponderance of circumstantial evidence for submissibility," or something, though not without summarizing the defense's arguments. "You made my argument better than I did," said Gary Naftalis, lead attorney for Mr. Gupta. "Though to lesser effect than I would have hoped."

And so the trial plodded on, with Procter & Gamble chief financial officer Jon R. Moeller explaining how the company reported financial results to investors. At least Mr. Moeller had the requisite experience to testify on the matter. Last week, defense attorneys peppered witness examination with objections on the grounds of foundation—that the witness on the stand lacked the wherewithall to define a stock offering, say, or an index fund.

It's a common defense technique in white collar trials, Fordham Law prof Steve Thel told The Observer, who is occasionally called as an expert witness to define financial terms in securities cases. "If you want to tell the jury what a board of directors is, and what the duties are, it's a fine line," said Thel. "It can be a contestable issue, because it's the judge who's supposed to tell the jury what the law is."

Still, the government extracted Mr. Moeller's testimony unmolested, or at least for as long as The Observer lingered in the courtroom. A dodgy moment did arise—the blond-and-ruddy Mr. Moeller described Procter & Gamble's Folgers strategy as a choice between a traditional spin-off and a reverse Morris trust split merger—but thankfully, no one asked the executive to define that latter.