Rajat Gupta crossed the fine line

Whether Rajat Gupta is guilty of insider trading or not is for the courts to decide. For many who know him, his actions were unethical.
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Jul 05, 2011, 08.15 AM | Source: Forbes India

Rajat Gupta crossed the fine line

Whether Rajat Gupta is guilty of insider trading or not is for the courts to decide. For many who know him, his actions were unethical.

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Rajat Gupta crossed the fine line

Whether Rajat Gupta is guilty of insider trading or not is for the courts to decide. For many who know him, his actions were unethical.

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Rajat Gupta crossed the fine line
By: Sujata Srinivasan/ Forbes India

Whether Rajat Gupta is guilty of insider trading or not is for the courts to decide. For many who know him, his actions were unethical

Few gods in the pantheon of corporate America were as exalted as Rajat K. Gupta, who was revered as much for his decency and discretion as his brilliance and business chops.

Now the 62-year-old ex-head of McKinsey & Company, who has stepped down as director from the boards of Goldman Sachs, Proctor & Gamble, AMR Corp. (the parent company of American Airlines) and the Bill & Melinda Gates Foundation, is fighting to defend his reputation. It’s a formidable battle in the land that set the stage for his ascent.

Whether Gupta is guilty or not of the insider trading allegations by the US Securities & Exchange Commission (SEC) is for the legal system to determine. That he is in moral disgrace and tainted in the eyes of those who once were friends and admirers is amply clear by their anguish
and contempt.   

“How do you start a conversation with him? Do you say you’re sorry this happened or do you say, son-of-a bitch, look what you did?” asks Kanwal Rekhi, managing director of California-based Inventus Capital Partners and a friend of Gupta’s for 20 years.

Rekhi says he stuck his neck out defending Anil Kumar, Gupta’s close friend and McKinsey protégé, when the news organisation Bloomberg called on the heels of SEC’s charges against Kumar, who was a director at McKinsey and a consultant at Galleon Management hedge fund. The regulator alleged that he passed on confidential information about McKinsey clients to Galleon founder Raj Rajaratnam.

“I defended Anil tooth and nail and felt very let down when he pleaded guilty. So when Bloomberg called me about Rajat, this time I refused to comment. He and Anil were so tight and Anil had confessed,” Rekhi says.

The tide of public opinion turned against Gupta upon the release of a nearly 19-minute wire-tap conversation between him and Rajaratnam, which prosecutors played this March 15 at Rajaratnam’s trial. Currently on bail, Rajaratnam was found guilty on all 14 counts of securities fraud and conspiracy. The SEC alleged that the conversation was one of several revealing exchanges between the two in 2008.

The tape revealed that during the course of a casual conversation, Gupta told Rajaratnam that Goldman was considering the possibility of acquiring Wachovia or the American International Group.

“The damage has been done to Rajat because of the tape. Whether he is proven guilty or not, he has shown moral turpitude. He was so loose with Goldman’s confidence,” Rekhi says.

During the course of that taped conversation, Rajaratnam spoke disparagingly of Anil Kumar, stating that he was paying Kumar for doing nothing. “Instead of showing moral outrage toward Rajaratnam that he was giving money to Anil, Rajat implied that Anil should have been more grateful,”
Rekhi says.

Looking back, Rekhi recalls a negative trait about Gupta that suggested there was more to the man than meets the eye. “It was worrisome how Rajat always wanted to be centre stage at events such as those organised by Pan-IIT, which is a labour of love. If he didn’t get the spotlight, he often did not participate. But the lack of character and moral fibre — based on the taped conversation — wasn’t the Rajat I knew,” he says.

The SEC, this March 1, filed a civil lawsuit against Gupta on the grounds that he disclosed material information obtained as a member of the board of directors at Goldman and P&G. The charges are that Gupta disclosed to Rajaratnam news of Berkshire Hathaway Inc.’s $5 billion investment in Goldman before it was publicly announced, as well as Goldman and P&G’s financial results.

The lawsuit alleges that Rajaratnam caused Galleon hedge funds to trade based on Gupta’s information about Goldman, generating profits and loss avoidance of over USD 17 million, and also trade on P&G information, generating profits of over USD 570,000. The alleged events took place between June 2008 and January 2009. Gupta’s trial is set to begin on July 18. However, as these cases go, there is a possibility that the hearing may get postponed.

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