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Goldman banker jailed for insider trading
Goldman banker Rajat Gupta in court.

A former Goldman Sachs and Procter & Gamble director has been sentenced to two years in jail in the US for feeding inside information about board dealings to a billionaire hedge fund owner.

Rajat Gupta, 63, was sentenced yesterday by US District Court Judge Jed Rakoff, who also ordered him to pay a $US5 million ($4.87 million) fine.

The Harvard-educated businessman, long respected on Wall Street, was one of the biggest catches yet for the Federal Government in its five-year crackdown on insider trading that has so far resulted in 69 convictions.

Gupta was ordered to report to prison on January 8.

Reading from a statement, Gupta said: "The last 18 months have been the most challenging period of my life since I lost my parents as a teenager.

"I regret terribly the impact of this matter on my family, my friends and the institutions that are dear to me. I've lost my reputation I built for a lifetime. The verdict was devastating."

Gupta was convicted of feeding information to Sri Lanka-born Raj Rajaratnam.

The one-time billionaire hedge fund boss controlled up to $US7 billion in accounts, giving him a firm footprint in the financial markets and influence that impressed Gupta.

Prosecutors described how Gupta raced to telephone Rajaratnam with stock tips, sometimes only seconds after getting them from board conference calls, allowing Rajaratnam to make more than $US11 million in illegal profits for him and his investors.

Rajaratnam was jailed for 11 years in 2011.

The case against Rajaratnam and his co-conspirators resulted in 26 convictions and was described as the biggest insider trading case in history.

It was successful in part because of unprecedented use of wiretaps more familiar to juries at mob and drug trials.

Gupta was convicted of three counts of securities fraud and one count of conspiracy.

The judge said a prison sentence was necessary to send a message to insider traders that "when you get caught, you will go to jail".

Defence lawyer Gary Naftalis promised to appeal, telling Judge Rakoff he wanted Gupta free pending the appeal.

The judge did not immediately rule on the request.

Prosecutors accused Gupta, a former chief of the global consulting firm McKinsey & Co and a one-time director of the huge consumer products company Procter & Gamble, of "above-the-law arrogance" in feeding Rajaratnam inside tips between March 2007 and January 2009.

Goldman Sachs chairman Lloyd Blankfein testified that Gupta appeared to have violated the investment bank's confidentiality policies.

In their pre-sentencing brief, defence lawyers cited Gupta's many good deeds worldwide, saying they were unusual enough to warrant a sentence of probation with instructions to perform community service.

Mr Naftalis told the judge that Gupta had "one of the best reputations on the planet. His loss of reputation is severely strong punishment.

"The conduct for which he was convicted represents an isolated aberration and a stark departure from this personal history," the lawyers wrote.

At Gupta's trial, which began in May, prosecutors highlighted a 2008 phone call they said was made by Gupta to Rajaratnam minutes after Gupta had learned during a confidential conference call about Warren Buffett's planned investment through Berkshire Hathaway of $US5 billion in Goldman.

Moments after the phone call ended, Rajaratnam purchased $US40 million in Goldman stock - an 11th-hour trade that ended up making him nearly $US1 million - at the height of the financial crisis that had engulfed the US.

In another recorded phone call in 2008, Rajaratnam told one of his traders that he had got a tip "from someone who's on the board of Goldman Sachs" that Goldman was facing an unexpected quarterly loss.

Gupta, prosecutors said, was motivated to help Rajaratnam because he had a financial stake in some of the hedge fund manager's business ventures.