The sentencing of Wall Street wizard Rajat Gupta in the historic insider trading case has led to the fall of a one-time icon for many Indians
By Shaili Chopra In New York
“This is where destiny is taking me.”
This is what former Goldman Sachs Group Inc director, Rajat Gupta, told old friend Pramod Bhasin, as he sat with a glass of scotch in hand, in a mid-town bar in New York. Little did Gupta know how prophetic his words would be, that destiny would take him to a place he never thought possible. Or did he?
Gupta spent the past few days with his family and close friends at his tastefully decorated Westport home in Connecticut. Thinner and a little weak, he was however “calm and spiritual”, says Bhasin, his long-time friend and colleague from the GE days. To his friends and colleagues, Gupta has been an epitome of a balance between success and selflessness, but one wonders if they were too impressed by him to look beyond his brilliance.
On 24 October, in a New York court, District Judge Jed Rakoff sentenced Gupta, 63, to a two-year prison term and a $5 million fine in what has been the most high-profile case of insider trading in the history of America. The judge rejected Gupta’s request to serve a long programme of community service and a proposal to work in Rwanda with HIV patients. About 400 letters of support for Gupta from the world’s high and mighty might have helped Gupta get what is being perceived as a “letoff”, but they weren’t enough to reject the enormous public pressure to promote and respect the law on white-collar crimes in America.
“The last 18 months have been the most challenging period of my life since I lost my parents as a teenager,” read a statement by Gupta. “I’ve lost my reputation I built over a lifetime. The verdict was devastating.”
Earlier in June, a jury had found Gupta, a former board member at Goldman Sachs and Procter & Gamble (P&G), guilty on three counts of securities fraud and one count of conspiracy, for passing on inside information to Raj Rajaratnam, a hedge fund owner. Rajaratnam used this information to bet on Goldman shares that made his fund Galleon a profit of about $900,000.
As the kingpin of the insider trading case, Rajaratnam got the longest term ever given in an insider trading case — 11 years prison time — along with a $10 million fine. Despite the fact that Gupta did not personally benefit from the tipping, his position as a director of Goldman Sachs is one of the most important in corporate America and this situation compromised on that. Gupta, in this case, became the fallen hero who left Wall Street, the US and India Inc numb with his acts after reaching for what some call “the moon”.
“How much is enough?” is the question. Do greed and desire never abandon Wall Street? There is no doubt Gupta has always wanted to make money. But just how much and in what manner?
In America, money is everything, from success to the key to power. “He played the American game,” says Kenneth Eugene Lehrer, an advocate and former adjunct professor of finance at houston University. “We in America sometimes make icons of people such as Lance Armstrong and John F Kennedy, even though they may have won the wrong way. I think Gupta too was like them.” Congress MP Shashi Tharoor, who has served at the UN in New York and met with Gupta in that capacity, doesn’t buy this theory. “He is not merely some ‘fat-cat’ businessman but someone who has shown his concern for broader issues beyond himself,” says the former MOS for External Affairs.
Gupta’s influence over the power circles was so strong that it even led many global Indians to question the American legal system and imply that Gupta has been made the victim in this case. “In the US, the small fish, by plea bargaining and incriminating a big fish, can get off lightly even though the small fish may be more guilty than the big fish,” says Bajaj Group Chairman Rahul Bajaj, who had worked with Gupta on the board of the Indian School of Business (ISB), hyderabad, and met with him during the World Economic Forum meetings at Davos, Switzerland. “Some people are getting off very lightly without going to jail because, to save their skin, they implicated Rajat Gupta.” Bajaj was referring to former mcKinsey Partner and Gupta’s friend Anil Kumar, who turned approver and whose cooperation led to the conviction of Rajaratnam and Gupta for insider trading.
But the story of Rajat Gupta cannot be told so simply; it cannot be defined by set rules alone. There are layers to the tale of Gupta’s fall, and it’s worth a rewind.
For a man who reads Hindu scriptures, and is a strict believer in god and karma, the connect with money came with its own lure. A happy family life with four daughters and a great reputation may have been at crossroads with the highflying consultant hobnobbing with the Clintons, Gates and others in the US. Was this Rajat Gupta’s true calling? As a financial wizard, it sure was.
Success Comes Naturally
BORN ON 2 December 1948, Gupta hails from Kolkata and was orphaned at a young age. His father, Ashwini Kumar Gupta, was a journalist and his mother, Pran Kumari, a teacher. Gupta, despite his early struggles, was a thoroughbred, who went to modern School in Delhi and then to IIT, Delhi, before making it to the harvard Business School in 1973, where he was named a Baker Scholar.
‘‘Rajat is very devoted to various causes that he has taken up, especially to help India’s development and progress. He has always been a person of great integrity and clarity of purpose”
‘‘In the US, the small fish, by plea bargaining and incriminating a big fish, can get off lightly even though the small fish may be more guilty. Some people are getting off very lightly without going to jail because, to save their skin, they implicated Rajat Gupta”
‘‘Smart people, in particular, have a highly developed capability to compartmentalise things. Thus, they could be genuinely nice (even saintly) in one area while being not so nice (or even devilish) in another area”
Anil K Gupta
Gupta’s wife, Anita, is a Kashmiri Pandit, who he met in 1968 during his IIT days. “During the current crisis, a lot of good friends have disappeared or gone against him in the hope of getting leniency,” said Anita. Of Gupta’s four daughters, Geetanjali, the eldest, is also a defence witness. Like her father, she went to harvard to study business management. megha, Aditi and Deepali are the other three.
As a business guru, Gupta went on to head McKinsey & Company, one of the most influential management consulting firms in the world. Gupta was appointed managing director of the firm, the first non-American to hold that position in 21 years, a distinction he wore with pride. As one of the most respected corporate advisers in the US, Gupta served as corporate chairman, board director or strategic adviser to many large and notable organisations — corporations including Wall Street’s most powerful investment bank Goldman Sachs, FMCG giant P&G and America Airlines, and non-profits including the Bill & Melinda Gates Foundation.
Gupta also co-founded institutions like the ISB, the America India Foundation with victor menezes (former Citibank India boss), and the private equity firm New Silk Route. ISB is often considered the mascot of his achievement in India though he has stepped down from all boards, including the business school’s, once the case began. If there was one word that defined Gupta’s approach, recalls Bhasin, it would be learning. “Despite all Gupta’s achievements, he is not a name-dropper. He has the ability to think ahead,” he says.
Clearly adulation and accolades poured in at every stage of Gupta’s life. His critics say that it emboldened him to the extent that he may not even have realised what he did was truly wrong. Gupta’s image has been tarnished and today he faces a reality his father may not have been proud of.
But few know that Gupta’s father too had gone to jail, albeit for a very different reason — he was arrested by the British for participating in the freedom struggle. Gupta, on the other hand, was arrested for insider trading, a whitecollar crime in the higher echelons of the American business world. He had grown up in a very different world and rose meteorically from very humble beginnings.
Gupta’s stint at P&G was also under the scanner, as prosecutors had charged him with misusing his position as a board member. The consumer giant’s name features in Gupta’s conversations with Rajaratnam, where he had tipped the hedge fund owner on the company’s sales forecast before the results were officially announced. Gupta was also accused of passing on information of acquisitions by the company.
Business vs Friends: A blurred line?
DAYS AFTER being named in the insider trading case, Gupta sent a letter to his friends. Quoting from the Bhagavad Gita, he wrote that he had done “no wrong” and sought their trust and support. And he got it.
Gupta’s friends in the power circles had written to the presiding Manhattan US District Judge Jed Rakoff urging him to show fairness and leniency. Former UN Secretary- General Kofi Annan in his note had said: “I urge you to recognise Rajat for the good he has done in the world, to give him the credit that he deserves for helping others and to take into account his efforts to improve the lives of millions of people.” Ajit Jain, considered the right-hand man of billionaire investor Warren Buffett, Deepak Chopra and even Bill Gates have written “sort of appeals”. Gates wrote that Gupta’s contributions “have made a real difference in the lives of literally millions of people around the world”.
But legal experts watching this case did not buy this last-minute lobbying. “I’m sure these people have benefited from him and want to return a favour by writing these letters,” said advocate-economist Kenneth Eugene Lehrer. Lehrer wrote a letter to Judge Rakoff insisting on a fair punishment for Gupta. “How can we have sentences where the rich go free while the poor guys must go to jail for many years? What example are we setting?” he said.
In what has been a historic case involving a giant investment bank, life has come full circle for Gupta with the verdict on 24 October. Public opinion in America wanted to see Gupta in jail for what he did. But his friends thought otherwise. It is this blurring of lines between a business decision meant to be a “secret” and a mention to a friend that has coloured the Rajat Gupta case.
BACK IN India, promoters and business czars have all come out in the open to back Gupta. “It was stupidity of the highest order,” says Rahul Bajaj. “I can only call this a case of misjudgment.” Godrej Group Chairman Adi Godrej knows Gupta well and their families too have been close in the past 20 years. Godrej says that Gupta has always been a person with a vision and was “very devoted to various causes that he has taken up, especially to help India’s development and progress. Rajat has always been a person of great integrity and clarity of purpose”. Reliance Chairman and MD Mukesh Ambani too counts Gupta among his close friends. “I respect Rajat for his selfless dedication and humility and he will always be a friend of mine,” he says.
But, are Gupta’s friends getting to see only one side of his personality? “People are complex beings,” says professor Anil K Gupta, Michael Dingman Chair in Strategy at the University of Maryland. “Just look at martin Luther King or Bill Clinton, both of whom were well-known philanderers. Or, even Robin Hood. Smart people, in particular, have a highly developed capability to compartmentalise things. Thus, they could be genuinely nice (even saintly) in one area while being not so nice (or even devilish) in another area.”
Urban Development Minister Kamal Nath disagrees with this theory. “You don’t support someone because he belongs to a circle,” says Nath, who also considers Gupta a friend. “You support them for who they are and their conduct.”
All of Gupta’s “friends” are unanimous in calling this case “an aberration”. The question is why? Is it because in higher echelons, unimpeded exchange of information is the norm until you are caught? Do promoters feel it’s okay to share such business details with “friends”? And if so, doesn’t this ‘old boys club’ make money at the cost of shareholders?
“Absolutely,” says a formal market regulator in India. “We treat promoters and bankers like Brahmins (using the word in the sense that they are above reproach and can do no wrong).” The genesis of this thinking lies in two issues. One, that often there is tremendous mutual understanding between banks, promoters and consultants. “What’s generously called networking has its roots in sharing information for profit,” says the regulator. The other issue, he points out, is that making money isn’t enough but achieving status is, and so the boundaries get blurred, as there is “a huge desire to be wanted and accepted in this club”.
This particular case had its tough moments for Gupta, one being, when his eldest daughter Geetanjali was put on the defence witness stand. Neatly documented by TheNew York Times in a report, Geetanjali reportedly told the jury about a conversation that she had with her father in September 2008, a period of great turmoil in the world market, in which her father talked about the difficulties he was facing over an investment he had made with Rajaratnam. “He was upset,” she said. “He was stressed, running his hand through his hair, and he is usually a very calm and collected person.”
On cross-examination, public prosecutor Reed Brodsky asked her two powerful questions. As reported, the exchange was a bit poignant and went like this:
“Do you love your father?” Brodsky asked in his two-line cross-examination of Geetanjali.
“Yes, I do,” she said.
“Would you do what you could to help your father?”
“I would do anything to help,” she replied. “I would not lie though.”
In the days preceding the verdict, Gupta’s daughters and wife appealed to the judge for leniency. Cynics mocked this as making a case for someone to look good in a uniform of the Peace Corps rather than punish him in prison khakis.
Considering the attention it garnered, Gupta’s case begged asking if the judge should follow the rulebook or could exceptions be made? In any Constitution, the law is above everything else. By that yardstick, rules are rules and verdicts have punishments that don’t have considerations for character but only for actions. As a Connecticut-based head of a search firm says: “Does it really matter in his case that Gupta is a good man? If a leader should lead by example, then didn’t Gupta lose his direction somewhere?”
Big questions are bound to rise out of the verdict. Is a two-year prison term enough to act as a deterrent for Wall Street’s notorious white-collar crimes? Does it send out the right signal? Has the judge been too lenient with Gupta?
It’s been hard for people not to compare Gupta with another famed insider trading case of ‘junk bond king’ Michael Milken. Like Gupta, Milken too was a successful businessman and a big philanthropist, but in 1989, he was accused of passing sensitive corporate information and sentenced to 10 years in jail and a $600 million fine.
There are others who argue that Gupta had already been punished before the verdict. Walter Pavlo of 500 PearlStreet, a firm that provides information on white-collar crimes, says Gupta had already fallen from grace. “Job opportunities he once had are no longer available,” said Pavlo. “Many people feel prison is the ultimate punishment, but it is just one of many. In this case, family and friends were hurt. A prison sentence for Gupta is just a way to appease the masses that justice has been done but, in fact, justice and punishment both had already been meted out to Gupta.”
Shashi Tharoor echoes Pavlo’s thoughts. “I’m sure no useful purpose would be served by keeping him behind bars, and convinced that he would use his freedom well to continue to serve humanity, as he has already shown the inclination and ability to do,” he said.
The 24 October verdict goes beyond the case of a single individual to envelop the larger concern of Indian professionals losing credibility in America. Water-cooler conversations in Wall Street offices are already abuzz with how this case could impact Indians in high-profile positions. No one wants to go on record, but all admit that “Gupta had set a benchmark”, and with that broken, “it would be hard for someone else to get that access”.
‘‘In America, we sometimes make icons of people such as Lance Armstrong and John F Kennedy even though they may have won the wrong way. I think Gupta too was like them”
Kenneth Eugene Lehrer
Former Adjunct Professor of Finance, Houston University
That said, this episode unfolds at a time when many of America’s top positions are held by Indians such as Indra Nooyi at PepsiCo, Nitin Nohria at the harvard Business School, Soumitra Dutta at Cornell University and many others. In fact, even Prosecuting Attorney Preet Bharara is a successful Indian who has risen up the ranks of America’s very competitive lawmaking industry. “There are far too many extremely successful Indians in the US for one person to have much impact,” says Anil Gupta of the University of maryland. “It’s like any other large and prominent community. People accept that there will be all types — good eggs as well as some not-so-good ones.”
RAJAT GUPTA’S networking, approachability, helpfulness or even a sense of “too-big-to-fail” has clearly proved to be his undoing. Notwithstanding where he grew up or where he was educated or even who his friends are, he is after all human, and prone to mistakes. But in society and in business, if risk is rewarded, risqué is punished.
For India, this incident is very relevant. Prime minister Manmohan Singh has had great regard for Gupta and his achievements. At a time when internal politics, scams and economic inaction are hurting India’s standing in the world, this case can only do further damage. As corporate strategist and Gupta’s friend Kamini Banga puts it: “Some things, no matter when they come, are never welcome.”
Gupta’s friends will remember him as a thinker, a doer, a listener and a spiritual man. As a believer of the Gayatri mantra, a highly revered chant in Hinduism, he drew peace from it. But this Sanskrit saying also reflects on the question of sin and penance.
May we receive thy supreme sin-destroying light,
May Thou guide our intellect in the right direction
No matter what lies ahead for Gupta, he will often go back to this for strength. Whether behind bars or in his fight for what he calls justice.