MBAs that have gone to prison.


Graduates of four of the country’s top business schools had careers that were more infamous than laudatory, and they ended up by going to jail for illegal practices. A professor at another of the elite institutions taught for 12 years in its MBA program before meeting a similar fate. Harvard, Stanford, Kellogg and Wharton produced outstanding MBA graduates who turned their stellar education toward nefarious practices that landed them in prison. A Columbia Business School faculty member served time in a federal facility as well.


• Andrew Fastow
With an MBA from Kellogg, Fastow was the CFO of Enron until he gained millions of dollars from disguising the company’s financial condition. Fortune cites the 78 counts of fraud that he faced initially and eventually pled guilty to two. Fastow served six years in prison and forfeited a fortune of $30 million. In his lectures, he acknowledges that the Enron debacle still remains as “the largest accounting fraud in history” and that he knew what he was doing was wrong. The crimes that he committed involved off-balance-sheet vehicles and misleading assumptions about corporate pension plans. Fastow confesses to his audiences that his sentence punished him for not complying with securities rules, but the underlying cause was creating a “false appearance” of Enron that made it look healthy when it was not. He cautions that the complexity of securities laws offers opportunities to interpret them to an advantage, and “that was the mistake I made.”


• Rajat Gupta
Graduation from Harvard Business School as a Baker Scholar may have propelled Gupta to his job as the Managing Director of McKinsey & Company, but he received a two-year sentence for securities fraud. His role as a “globe-trotting management consultant” ended when a jury in Manhattan found him guilty of tipping off a former business associate of corporate secrets that he learned from his unique access to companies like “Goldman Sachs and Procter & Gamble.” Gupta served 18 months of his sentence at the Federal Medical Center Devens near Boston and the balance at his home, wearing an ankle bracelet and confined to his apartment. The losses that Gupta suffered from insider trading included a fine of $5 million and a penalty of $13.9 million from the Securities and Exchange Commission (SEC). He received an order to reimburse Goldman Sachs for an internal investigation of his actions at the cost of $6.2 million.


• Matthew Martoma
Stanford MBA graduate Matthew Martoma received a nine-year prison sentence for insider trading and an order to forfeit $9.38 million. Within a month of his conviction, Stanford withdrew his degree. The violations that he committed as a portfolio manager involved the illegal trading of pharmaceutical stocks that profited hedge fund SAC Capital Advisors LP $275 million. The judge set the forfeiture at an amount that matched the bonus that Martoma received for the year when the insider trades occurred. Stanford’s decision to revoke Martoma’s MBA may relate to its policy that prohibits admission to the business school on “false pretenses.” His failure to mention the disciplinary problems that he experienced at Harvard may have contributed to the outcome as well. The “unsealed disciplinary report” from Harvard revealed his use of computer software to change his grades in law school from Bs to As.


• Raja Rajaratnam
An MBA from Wharton accompanied Raja Rajaratnam to his position as the manager of the Galleon Group hedge fund and the extraordinary riches that he experienced. However, his pursuit of insider trading got him a sentence of 11 years in prison, a term that exceeds any other ever imposed for such offenses. The judge cited “a virus” in the business culture that needs eradication and imposed a $10 million fine and forfeiture of $53.8 million on the billionaire investor. Rajaratnam had advised a contact who was under suspicion by the authorities not to buy a stock until he got approval. When faced with the evidence, she admitted participating in insider trading and became a cooperating witness among many others. The combined effect of the investigation resulted in the closure of Galleon and the arrest and imprisonment of Rajaratnam.


• Gregory Rourke
Harvard MBA and former Columbia Business School professor Gregory Rourke received a two-year sentence and three more years in supervised release for defrauding clients who invested in his company. His illegal activities included overstating his net worth and his company’s tax liabilities. The misrepresentations assured investors that his personal guarantee was reason enough to trust him even as he profited $3 million at their expense. The claims on his financial statement that he presented to 30 investors showed ownership of $12 million in assets of cash, real estate and marketable securities, almost none of which belonged to him. Demand payments by investors revealed the extent of his scheme. Before his downfall, he had served as president of Danskin, CEO of Kaplan Test Prep, CEO of MMS Incentives and held a partnership with CRG Partners, and he founded Navagate where his problems started. The judge released him on bail of $250,000.


• Jeff Skilling
The CEO of “scandal-ridden Enron,” Harvard MBA Jeff Skilling, received a finding of guilty by a federal jury for conspiracy, securities fraud, insider trading and making false statements to auditors. The court ordered him to “forfeit approximately $42 million” as partial restitution to the victims of his fraud. Skilling’s convictions on multiple counts resulted from a scheme to “deceive the investing public” as well as the SEC about Enron’s performance. The fraudulent scheme made the company appear more profitable than it was, artificially inflating the price of the stock. His original sentence was for 292 months of imprisonment, but the court of appeals found that the district court had erred in setting the amount of prison time. The original punishment increased Skilling’s sentence for his participation in jeopardizing the soundness of a financial institution, in this case, Enron’s pension plan. The revised sentence reduces the time in prison to 168 months.


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