This month marks eight years since Rajat Gupta was released from house arrest and 15 years since the time that the US Securities and Exchange Commission (SEC) first filed an administrative civil complaint against him for insider trading with billionaire and Galleon Group hedge fund founder Rajakumaran Rajaratnam.
The story of the rise and fall of a man who was once the shining star of the global corporate firmament is more intriguing than any Hollywood thriller. It is also the tragic tale of someone who erred, with disastrous consequences.
Insider information: The call that changed everything
It started with a mere conversation between these two powerful men, Raj Rajaratnam, the Sri Lankan-origin hedge fund trader and Rajat Gupta, former chairman of McKinsey. Only, it was an illicit conversation that would turn out to be a debacle for both men and a triumph for the prosecuting attorney, another South Asian, Preet Bharara.
That brief phone chat tilted the symmetry of information flow askew wherein Gupta passed on insider information enabling Galleon to make a million dollars of profit. Gupta, for his part, made no money from this. But he was bidding for a chairman's place in Rajaratnam’s $7 billion hedge fund with huge monetary benefits so that he would move into the billionaire’s club.
Why did Rajat Gupta do it? The 'epic enigma'
In the 2000s, Rajat Gupta was a sterling Harvard Business School alumnus who was on the board of Goldman Sachs, Procter & Gamble and American Airlines. Such was his influence that a magazine profile named him Mr Davos and The International Power Broker. Much admired for his philanthropy, he also co-founded the Indian School of Business and in 2008, was decorated with the Padma Bhushan.
So, what was such a suave high-flyer with the cushion of $100 million in personal wealth doing talking to someone one who stepped lightly in the shadow world of white-collar crime? It is what author Sandipan Deb in his 2013 book Fallen Angel: The Making and Unmaking of Rajat Gupta calls the “epic enigma” for everyone who had ever known him or even heard of his accomplishments.
The decisive moment was when Gupta called on Rajaratnam’s direct line seconds after a Goldman Sachs board meeting in 2008 where he learnt that in a surprise move Warren Buffet would be investing $5 billion to shore up the bank reeling from the shock of the financial crisis. Rajaratnam immediately made big purchases in Goldman stock and netted a cool profit when it rose. Prosecutors later found evidence of Gupta passing on information from the board over a period of well over two years though he did not gain directly from the trades.
The fall: 2 years in federal prison & loss of reputation
Retribution in 2012 came swiftly and with a clear no for clemency. The presiding judge in the case, Jed S. Rakoff, whose master's thesis in college was on Mahatma Gandhi, was very clear that even if Mother Teresa were in the dock for a bank robbery, “the jury would still have to determine whether or not she committed the robbery.” Rakoff also observed that the world was full of good men who did that one bad deed.
Gupta was given two years in federal prison, much less than Rajaratnam’s 11 years sentence, though the latter got a year and a half off his full term with some help from Kim Kardashian who lobbied with Donald Trump for prison reform! For Gupta, the reputational damage was huge. McKinsey, the firm he led for nine years, removed his name from the company's alumni directory. He was also forced to resign from all philanthropic and corporate boards from where he had networked with powerful global leaders.
He did plead that the all-powerful attorneys had made him a trophy victim and bayed for his scalp for an America that wanted a victim for its anger during the 2008 bloodbath on the Street. That thought might be a bit unfair to the SEC. The truth is, once Gupta engaged with Rajaratnam, the descent into hell was inevitable. Before he was arrested in 2009 and charged with running the biggest insider trading scheme in hedge fund history, the trader with the lavish lifestyle had got into hot water with the regulators repeatedly. An over the top, typical Wall Street personality who lived dangerously and with a shaky moral compass, Rajaratnam’s tryst with the law started way back in 2005 when he had to pay $20 million as fine to settle a federal investigation. Gupta entered this cauldron of intrigue by choice. It was a gaping vacuole in an otherwise impeccable personality that annihilated his past self, and all his gilded achievements. He ended up sabotaging a legacy that once seemed unassailable.
Both the players in this saga have chosen to write books post their incarceration wherein they contend that the prosecutors went for small, and according to them powerless, fish like them in the face of the 2008 Wall Street collapse. Looking for heads, they chanced on them and were easy prey for the predatory and all-powerful prosecutors like Bharara. At any cost, both say they have turned spiritual and stoic.
(Disclosure: Sandipan Deb is now a columnist for Moneycontrol. Deb had nothing to with the writing or publishing of this column.)
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
