Photo illo: Ed Johnson

When Rajat Gupta was sentenced to two years in prison last Wednesday, the government finally nailed to the wall the largest scalp it has taken to date in its multiyear investigation of rampant insider trading on Wall Street. He wasn’t the richest—that would be erstwhile hedge fund manager Raj Rajaratnam, the man to whom Mr. Gupta was convicted of passing confidential information he learned while serving on the boards of Goldman Sachs and Procter & Gamble. But he’s certainly the highest-profile person to be convicted of such charges since everybody’s favorite reprobate homemaker, Martha Stewart. Like Ms. Stewart, Mr. Gupta got off easy—two years instead of the eight to 10 that the government had asked for. But that’s the way the world works, people. Get used to it.

Mr. Gupta plans to appeal, of course. Which is one reason why his statement before U.S. District Judge Jed Rakoff was so predictably aggravating: he expressed remorse—albeit only for the effect the trial has had on those close to him—and declined to make any admission of guilt. It was the classic, “I’m sorry if what I said offended you,” non-apology apology. No matter. Like my longtime nemesis Conrad Black—the disgraced former newspaper mogul who served two years for fraud yet still feels compelled to absurdly proclaim his innocence every chance he gets—no one really gives a damn, or believes a word he says. They both broke the law and were convicted for their crimes. Period.

There is a legal wrinkle that might get Mr. Gupta off somewhere down the road, in what will surely be a lengthy appeals process: the fact that he didn’t seem to benefit financially from his insider dealings. But again, that’s one for the lawyers to argue about. In the court of public opinion, the man is a criminal. Case closed. In this non-lawyer’s humble opinion, his failure to profit doesn’t make him innocent—it just makes him stupid in addition to being unscrupulous. I wonder what it must feel like to be one of the only people to get punished for committing a financial crime in recent years. For a man who has spent his life as part of the global elite, now to be seen as nothing but a common criminal must be a profoundly humbling experience. That’s the thing about prominent people committing common crimes; strip away their expensive lawyers and their bluster, and it all just seems so ... pedestrian.

And what a steep fall it has been. Mr. Gupta’s was a singular career—he was one of the most prominent India-born chief executives of a major international concern—McKinsey & Co., which he ran between 1994 and 2003. (He left the building in 2007.) And in subsequent years, he was a giant in the world of philanthropy. But as this whole ordeal has shown, his is actually the same story we’ve heard a million times before. In fact, the broad strokes of Mr. Gupta’s case are eerily familiar in more ways than one.

The Conrad Black Effect

The loquacious Mr. Black was convicted of defrauding the shareholders of Hollinger International, a company over which he had almost absolute control. If all he needed was a few extra bucks, the man could have just given himself a raise. Instead, like an idiot, he chose to break the law. But stupidity is no defense for wrongdoing. Indeed, it is its constant companion. The same goes for Mr. Gupta: While he wisely refrained from emailing his partner in crime, thereby distinguishing himself from an even dumber cohort of modern-day Wall Street criminals, he did phone him literally seconds after telephonic board meetings of Goldman Sachs to spill the beans about confidential earnings reports and other news. What ever happened to the old meeting on a park bench? Don’t these boneheads watch Homeland? You should have just put an “X” in white chalk on the lamppost, Rajat. Maybe next time.

The Reverse Lance Armstrong Effect

In the lead-up to his sentencing, Mr. Gupta’s team somehow convinced his friends in both business and philanthropy to write letters to the court on behalf of the fallen corporate consigliere. He even managed to get Bill Gates to send over a statement of support, although Mr. Gates wisely avoided comment on the case itself and merely pointed out Mr. Gupta’s important work for the Bill & Melinda Gates Foundation. There’s no arguing about the good that Mr. Gupta has done, including being a founder and chairman of the board of The Global Fund to Fight AIDS, Tuberculosis, and Malaria. And we should thank him for that. But it doesn’t change the fact of his crimes.

Lance Armstrong’s defenders pursued a similarly desperate line of argument when the final nail went into that cheater’s inner tube. “Look at all the good he has done!” they said, as if having used his ill-gotten fame and fortune to fight cancer canceled out the bad acts that brought him to prominence. You might be able to convince me to buy that logic if Lance had given all his own money away. But he hasn’t—one recent report estimated his net worth in excess of $125 million. So no, Lance, it doesn’t change the fact that you’re a lifelong cheater and a bullier of your teammates.

If I knock over a bank and give half the money away, does it absolve me of guilt for keeping the other half? Of course not. And while Mr. Gupta surely is, as Judge Rakoff pointed out, an otherwise good guy who did a very bad thing—thus differentiating him from Mr. Armstrong, who seems to have been a very bad guy who went on to do good—the point is the same. You don’t get to stack all your benevolent deeds up on one side of the scales of justice to try to counter the weight of your crimes. It’s a different goddamn scale. Maybe Mr. Armstrong and Mr. Gupta are still getting into heaven for all their good works—you won’t find me blocking their way—but before Mr. Gupta steps through the pearly gates, he has at least got to pass through another set of gates, those protecting a medium security prison in Otisville, N.Y.

The Martha Stewart Effect

During the trial, one popular gripe was that that the government was going after Mr. Gupta because of his high profile. That’s the same gambit that Martha Stewart’s lawyers tried when she got caught with her hand in the insider trading homemade double-chunk macadamia cookie jar. God, that’s a tiresome one. Let’s be honest here—there are different rules for the rich and the poor in this country. But nothing sows the seeds of contempt more than the “You’re just targeting me because I’m so successful” defense. Having spent some time talking to U.S. Attorney Preet Bharara about the Rajaratnam and Gupta cases, I can tell you exactly why he targeted those prosecutions: Because he had the goods on them. The government prefers to bring cases it can win. Mr. Gupta was charged, in other words, not because he was famous, but because through his own illegal actions he handed Mr. Bharara and his team an airtight case.

The Goldman Sachs Effect (a k a The McKinsey Effect)

Defending himself against the criticism that his headlines overpromised, the former editor of Money magazine, Frank Lalli, famously retorted, “What’s a headline? It’s a shouted message down a crowded bar.” The point was that we all know that editors use headlines to grab our attention—that’s why they’re so big—and there was no crime in a little hype. (A long-time Money staple: Retire Rich!) Much of the media has eagerlymentioned Goldman in the headlines of all its Gupta stories because … well, you know. Because that’s the kind of thing that moves product. While I am not usually in the business of making apologies for Goldman, this is one instance in which the bank was unfairly tied to a case it actually had nothing to do with. In fact, in this case, Goldman was a victim. The best part? Mr. Gupta is objecting to Goldman’s bid for reimbursement of the legal fees (and the cost of an internal investigation) it was obliged to cover due to his crimes. What an asshole.

The same goes for McKinsey & Company. While there’s an argument to be made that Mr. Gupta damaged that institution severely when he was running the joint—you can read more about that in my history of the company, The Firm, due out in August—it’s totally wrongheaded to suggest that McKinsey’s reputation ought to suffer for actions he took years after leaving the company. He’d been gone since 2007, after all, and his offenses had nothing whatsoever to do with McKinsey. Alas, the same can’t be said for the misdeeds of Mr. Gupta’s old McKinsey colleague, Anil Kumar, who pleaded guilty in this same investigation. He sold McKinsey client secrets out the back door. You can be sure McKinsey has locked said door and thrown away the key. Point being, while it’s hard to marshal sympathy for either Goldman or McKinsey—quite possibly the two most arrogant and self-satisfied professional services entities on the planet—in this case, we need to give them both a pass.

The Deterrent Effect (a k a Money, Money, Money)

In addition to his jail time, Mr. Gupta was fined $5 million by the court. He’ll appeal that, too. But kudos to Judge Rakoff for bringing the punitive hammer down. Hopefully the fine will put the fear of God into other insider trading punters on Wall Street who have correctly concluded—up until this point, at least—that even if they’re caught, their punishments will be embarrassingly mild. Hit them where it counts—in the pocketbook containing the money they all worship so dearly—and the message might actually be heard. Rajat Gupta is certainly hearing it loud and clear.

editorial@observer.com

Mr. Rajaratnam

The Securities and Exchange Commission settled insider trading charges today against the former tech company chief financial officer alleged to have leaked insider information to imprisoned Galleon Group hedge fund manager Raj Rajaratnam.

In 2006, Xilinx CFO Kris Chellam tipped Mr. Rajaratnam to negative trends in the company's business at odds with public projections, allowing Galleon to turn a profit of nearly $1 million, according to a press release:

... in the weeks leading up to Xilinx’s December 7 update, Chellam received multiple reports indicating that the company’s third quarter business results were not going to be as positive as projected in October. Chellam learned on November 21 that the top end of the projected revenue range was being lowered from $490 million to $470 million. He attended a December 4 confidential executive staff meeting where the bottom end of the revenue projection was lowered from $476 million to $455 million. On December 5, Chellam telephoned Rajaratnam and tipped him about Xilinx’s worse-than-expected performance. Just minutes after the call, Galleon hedge funds controlled by Rajaratnam sold short Xilinx stock, eventually selling short more than 650,000 shares over the course of that day and the following day.

Mr. Chellam agreed  to pay $1.75 million in fines and disgorgement, which is not so bully for him. But unlike former McKinsey & Co. CEO Rajat Gupta, who was sentenced this week to two years in prison for sharing inside information with Mr. Rajaratnam, but who did not profit directly from Galleon's illicit trades, at least Mr. Chellam did not go uncompensated for his troubles. According to the SEC's complaint:

Chellam tipped Rajaratnam not only because the two were good friends, but also because Chellam had a substantial investment in Galleon, including in one ofthe funds that profited from the tips Chellam provided about Xilinx. Chellam was also in discussions with Rajaratnam concerning prospective employment at Galleon. In May 2007, Chellam became the Co-Managing Partner of the Galleon Special Opportunities Fund, a venture capital fund that focused on investments in late-stage technology companies.

Which, if you're going to break the law, seems like a less noble/more sensible motivation.

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.

Greg Coffey, the co-chief investment officer of Moore Capital Management's European business, is stepping away from the trading floor, according to Bloomberg. Mr. Coffey lost money for clients in the last two years amid tumultuous European markets. He joins Brevan Howard co-founder Chris Rokos and energy trader John Arnold among big players to walk away from hedge funds in the last year.

New Citigroup CEO Michael Corbat's experience running the bad bank which disposed of toxic assets in the wake of the financial crisis, will likely come in handy. According to The Wall Street Journal: Citi Holdings accounts for 24 percent of the bank's assets under new capital rules.

Worst-case scenario projections for the Spanish economy used in a stress test of the nation's banks looks increasingly likely, according to some banking analysts.

A lawyer for Rajat Gupta, the former McKinsey & Co. chief executive officer convicted earlier this year of insider trading, said his client should be sent to Rwanda, not prison. Gary P. Naftalis suggested that Mr. Gupta should be sentenced to probation and allowed to spend the time conducting humanitarian work in the African nation, according to The Times. Prosecutors recommended a sentence of eight to 10 years.

Also from The Times article on Gupta: imagine the indignation when Preet Bharara, the U.S. Attorney whose office prosecuted Mr. Gupta, arrived to speak to one of his daughter's Harvard Business School classes.

Morgan Stanley beat analysts' estimates, posting profit of 28 cents a share excluding accounting adjustments, according to a press release today.

Bank of America eked out a small profit in the third quarter, the firm said yesterday.

When states attorneys general agreed to a $25 billion settlement with the nation's largest mortgage servicers, the deal included direct payments totaling $2.5 billion to states themselves. The expectation was that state governments would use the funds for mortgage initiatives, according to The Wall Street Journal, but much of the money is being used to plug budget holes.

The FBI arrested a Bangladeshi man and charged him attempting to detonate a 1,000-pound bomb on the Federal Reserve Bank of New York.

A lobbying group backed by Elliott Management's Paul Singer enlisted the American Agriculture Movement, the American Association of University Professors and the Cattle Producers of Washington, to lend heft to investors' efforts to recover defaulted Argentinean debt through political channels. One problem? The trade groups aren't really sure how their good names got associated with anything having to do with Argentina, as The Wall Street Journal reports.

Another strange one: A former employee of William Koch—billionaire brother to Charles and David—says his boss kidnapped him after he raised concerns over a plan to evade $200 million in taxes.

Caxton Associates is trimming management fees to 2.6 percent form 3. percent, and performance fees to 27.5 percent from 30 percent, according to The Journal. Macro funds such as Caxton often charge higher fees than the traditional two and twenty; Caxton follows macro funds Tudor Investment Corp and Graham Capital Management in adjusting fee structures.

High-frequency trading firms are said to be dialing back in the face of lower profits.

James Gorman, Wall Street revolutionary?

Activist investors Warren Lichtenstein and Tim Brog are squaring off over board seats at supply-chain company ModusLink, according to The New York Post.

There's plenty for world finance chiefs to fight over in a series of upcoming meetings. There's Greece, of course, plus Spain, Italy and assorted other eurozone economies. Also: a territorial dispute between China and Japan, not to mention U.S. lawmakers' refusal to deal with the coming fiscal cliff.

Thousands of anti-austerity protesters marched through Madrid, banging pots and pans, to protest austerity measures.

Send in the troops! The Swiss Army is preparing to mobilize in event that the European debt crisis turns violent.

The London Whale—still mysterious/fascinating as ever.

Mr. Whitman was charged with making illegal trades on technology companies such as Polycom and Google, and faces up to 25 years in prison at a sentencing hearing scheduled for Dec. 20. His conviction, which comes three days after baseball hall-of-famer Eddie Murray agreed to pay more than $350,000 to settle charges that Mr. Murray traded on an illegal stock tip provided by former teammate Doug DeCinces, brings the total defendants to plead guilty or be convicted of insider trading since 2009 to close to 70.

"Mr. Whitman had a hedge fund with his name on the door, with rules against insider trading," said U.S. attorney Preet Bharara in a statement. "He flouted those rules, tarnished his name and now is a convicted felon facing imprisonment."

Early Whale sighting: Bank of England noticed in 2010 that JPMorgan's chief investment office was taking outsized positions in certain markets, but didn't share the observation with regulators responsible for supervising the bank, The Wall Street Journal reports. The trades noted in two years ago were not the same bets on corporate credit derivatives that led to $5.8 billion in losses associated with the London Whale.

Whither Europe: Greece is "hugely off track" from the cost-cutting terms of its most recent bailout package, making it likely that the country will require a further restructuring of its debt, European officials told Reuters. Meanwhile, Spain's borrowing costs are making a sovereign bailout increasingly likely.

What will Libor cost? Investors would like British banks to estimate expected costs of settling investigationsinto the manipulation of interbank lending rates. Barclays paid about $450 million to settle inquiries into its role in the unfolding Libor-rigging scandal; Bloomberg cites one report estimating that civil lawsuits relating to the matter could cost the bank twice as much.

For sale: Former Lehman Brothers chief operating officer Joe Gregory is selling his 15,000 sq. ft. North Shore home, Business Insider reports. The asking price is $22 million.

On second thought... Fun lead in Dealbook: "A technology research analyst who gained notoriety for taunting the federal government over its pursuit of insider trading is expected to plead guilty in United States District Court in Manhattan on Wednesday."

Rare miss: Apple missed Wall Street's estimates for the company's earnings for the second time in nearly 10 years, as iPhone sales fell from the previous quarter.

Bharara sued: The New York Post reports that Yeshiva law student Benula Bensam is suing U.S. Attorney Preet Bharara, the U.S. Marshals and the Department of Justice for unreasonable search and seizure after marshals took her cell phone during the insider trading trial of former McKinsey & Co. CEO Rajat Gupta. Ms. Bensam was pulled from the Southern District courtroom in which the trial was taking place and asked to stop writing letters to the judge.

Picking up the pace: The Treasury and the Fed are speeding efforts to offload assets acquired during the 2008 bailout of the country's banking system. The government is expected to sell or be repaid on $29 billion in securities in the months to come.

Set free: Anil Kuman, the cooperating witness you helped the government secure insider-trading convictions against Raj Rajaratnam and Rajat Gupta, was rewarded yesterday, receiving two years probation and no jail time for his involvement in the insider-trading scheme run by Mr. Rajaratnam.

Stiffer penalties: Japanese lawmakers are seeking to rewrite securities law to provide for criminal prosecution of brokerages and bankers that leak inside information. No underwriters have been charged for giving investors early word on new stock offerings in Japan's ongoing insider trading probe.

Movers: Robert Wolf, the top UBS banker whose close ties to President Barack Obama seeming to some like less an asset and more a liability, leaving the bank to open his own shop, called 32 Advisors. Credit Suisse hired Morgan Stanley banker David Hammond to lead its metal and mining advisory. Don Mullen, one of the architects of Goldman Sachs' big subprime trade, is aiming to raise a $500 million fund to buy foreclosed homes as rental properties.

Splits: Whitney Tilson plans to keep a lower profile after separating from T2 partner Glenn Tongue. "I will dramatically reduce my television appearances, interviews with the media, blogging/writing, and public speaking, both in the investment and philanthropic realms," he said in a letter obtained by Dealbreaker.

Student protection: The Consumer Financial Protection Bureau recommended Congress rewrite a 2005 law to allow student debtors to seek bankruptcy protection on private loans.

IPO off: Guitar maker Fender is not going public after all, citing market conditions in cancelling its initial public offering.

European leaders promised a more integrated banking system at the G-20 meeting in Mexico City yesterday, listing common banking oversight and depositor guarantees among future steps to be considered.

Asset managers like Legg Mason are preparing for worst case news out of Europe.

Greek savers aren't the only ones stuffing banknotes under their mattresses; Reuters reports that institutional investors are increasingly holding cash.

("If you wrapped up all the $100 bills in circulation, it would form a cube about 74 feet per side...")

Spain paid 2 percentage points more to borrow on 12-month bonds yesterday than it did one month ago.

If all that paints too rosy a picture, talk to Mark J. Grant.

For a little optimist, CNBC brings you Mark Mobius.

Jon Stewart interviews the drachma.

Your tab... Goldman Sachs advanced Rajat Gupta nearly $30 million to cover legal expenses, according to The New York Times, salt in the wounds after a) the former McKinsey & Co. chief executive and Goldman director passed Goldman secrets to hedge fund manager Raj Rajaratnam, according to the jury and b) Mr. Gupta's defense team took an adversarial approach to the parade of Goldman execs appearing at the witness stand (one attorney for Mr. Gupta called Goldman CEO Lloyd Blankfein "cold and callous," according to The Times). Anyway, Goldman has been picking up the tab because firm bylaws require the bank to pay the legal fees of executives and board directors; Mr. Gupta signed a pretrial agreement stipulating that he would pay his own legal bills if convicted.

Hide the whale: Bruno Iksil, the JPMorgan trader known as the London Whale, sometimes resisted sharing the details of his trading positions with superiors,The Wall Street Journalreports: "Mr. Iksil once confided to the colleague that when he wanted to avoid questions from supervisors about his trades, he sometimes would start discussing a mathematical term, equation or other technical jargon, to confuse and end the conversation."

Jamie Dimon is scheduled to testify before the "harsher and crazier" House of Representatives today.

BofA to divest? Swiss private bank Julius Baer is in talks to acquire Bank of America's non-U.S. wealth management unit, which manages about $90 billion, and which Reuters says could be worth about $2 billion.

Short-term fix: Nine months and $15 million later, Michael Francis is out as president of J.C. Penney.