In­dian Icon in Amer­i­can Trial

Cor­po­rate icon Rajat Gupta could get up to 105 years in jail if con­victed of con­spir­acy and se­cu­ri­ties fraud. The trial by jury be­gins in New York on May 21.

India Today - - INSIDE - RAJAT GUPTA

Cor­po­rate icon Rajat Gupta could get up to 105 years in jail if con­victed of con­spir­acy and se­cu­ri­ties fraud. The trial by jury be­gins in New York on May 21.

The mood was tense one morn­ing early in April at Rajat Gupta’s home in West­port, Con­necti­cut, a wealthy sub­urb of New York City. He and his wife Anita were watch­ing over their grand­chil­dren— half- In­dian, halfNige­rian twin girls, nearly two- and- a- half years old— and one of them, Meera, could not be found. It turned out to be a mi­nor cri­sis, Gupta told his friend Atul Kanagat with a laugh later that day; she was lo­cated in the ex­er­cise room of the house.

Rajat Gupta, 63, is used to more sub­stan­tive prob­lems. The for­mer man­ag­ing di­rec­tor of global con­sult­ing firm Mckin­sey & Co sat on the board of blue chip com­pa­nies such as Gold­man Sachs and Proc­ter & Gam­ble ( P& G) as well as in­sti­tu­tions like the In­dian School of Busi­ness. He was the first In­dian to head a ma­jor global firm and hob­nobbed with Bill Clin­ton, Bill Gates and Kofi An­nan. He lived on a 24/ 7 tread­mill— jet­ting around the world, meet­ing gov­ern­ment lead­ers and cor­po­rate ex­ec­u­tives, yet squeez­ing in time to men­tor young­sters or to catch up with friends and re­turn ev­ery call.

The high- pow­ered tread­mill stopped abruptly about two years ago, when his name sur­faced in con­nec­tion with the al­leged in­sider trad­ing by New York hedge fund bil­lion­aire Raj Ra­jarat­nam. Since then, Gupta has had to step down from po­si­tions on all boards.

Gupta is pre­par­ing for the fight of his life. He has been charged with one count of con­spir­acy to com­mit se­cu­ri­ties fraud and five counts of se­cu­ri­ties fraud and could face a sen­tence of up to 105 years in jail and mil­lions of dol­lars in fines if con­victed on all counts. His crim­i­nal trial is sched­uled to start in a US Dis­trict Court in New York on May 21. The charges re­late to his al­leged dis­clo­sure of in­sider in­for­ma­tion about Gold­man Sachs and Proc­ter & Gam­ble, while serv­ing on the boards of these com­pa­nies, to Ra­jarat­nam, founder of the Galleon Group hedge fund. Ra­jarat­nam was found guilty of in­sider trad­ing last year and is now serv­ing an 11- year prison term.

The of­fice of the US At­tor­ney for the South­ern Dis­trict of New York, headed by the In­dian- Amer­i­can fed­eral pros­e­cu­tor Preet Bharara, filed a su­per­sed­ing in­dict­ment or chargesheet in Jan­uary, ex­pand­ing the charges against Gupta. While re­leas­ing the orig­i­nal in­dict­ment in Oc­to­ber 2011, Bharara stated that Gupta “be­came the il­le­gal eyes and ears in the board­room for his friend and busi-

ness as­so­ci­ate, Raj Ra­jarat­nam, who reaped enor­mous prof­its from Mr Gupta’s breach of duty.”

Gupta has de­nied any wrong­do­ing. His at­tor­ney Gary Naf­talis dis­missed the US gov­ern­ment’s al­le­ga­tions as to­tally base­less. In a state­ment, Naf­talis said, “The newly added charges— like the ones brought last year— are not based on any di­rect ev­i­dence but rely on sup­posed cir­cum­stan­tial ev­i­dence. The facts in this case demon­strate that Mr Gupta is in­no­cent of all of these charges. He did not trade in any se­cu­ri­ties, did not tip Mr Ra­jarat­nam so he could trade, and did not share in any prof­its as part of any quid pro quo.”

The trial will be one of the most keenly watched pro­ceed­ings in cor­po­rate his­tory. Gupta is ar­guably the high­est rank­ing and most cel­e­brated ex­ec­u­tive to fig­ure in a white- col­lar crim­i­nal trial. Bharara, given his ju­ris­dic­tion span­ning New York City and Wall Street, is one of the most high­pro­file prose­cu­tors in the US.

Ex­perts be­lieve the gov­ern­ment will have a tougher time ar­gu­ing its case against Gupta than it did against Ra­jarat­nam. “The case against Rajat Gupta will cer­tainly be more dif­fi­cult for the gov­ern­ment pri­mar­ily be­cause it ap­pears to be based on cir­cum­stan­tial ev­i­dence,” says Richard Hol­well, the fed­eral judge who presided over Ra­jarat­nam’s trial and sen­tenced him af­ter he was con­victed. Hol­well, who re­signed from the ju­di­ciary ear­lier this year and is now a found­ing part­ner of the New York law firm Hol­well, Shus­ter and Gold­berg, adds, “The wire­tap ev­i­dence, while it will be harm­ful to Gupta, is not as sig­nif­i­cant as it was in the Ra­jarat­nam case.”

In the trial against Ra­jarat­nam, wire­tapped con­ver­sa­tions be­tween the hedge fund man­ager and his var­i­ous as­so­ciates and con­tacts, in­clud­ing Gupta, were seen as piv­otal in con­vinc­ing the jury of his guilt. While the wire­tapped calls were seen as di­rectly im­pli­cat­ing Ra­jarat­nam, the ev­i­dence against Gupta is not as di­rect and will be un­der­played by his lawyers as “hearsay”. For in­stance, there are wire­taps of Ra­jarat­nam telling third per­sons about get­ting in­for­ma­tion from a source at Gold­man Sachs, and also from “some­one on the Gold­man Sachs board”, but he does not name Gupta in these calls.

In March 2012, Gupta’s lawyers failed to pre­vent prose­cu­tors from seek­ing to re­play the taped con­ver­sa­tions dur­ing his own trial. Judge Jed Rakoff, who will pre­side over the trial, ruled that the gov­ern­ment had ob­tained the wire­taps legally and with proper au­tho­ri­sa­tion.

How­ever, this rul­ing does not mean that all the con­ver­sa­tions will be ac­cepted as ev­i­dence in Gupta’s trial; the judge will need to rule on each call.


This month, prose­cu­tors asked the judge to al­low three wire­tap con­ver­sa­tions of Ra­jarat­nam speak­ing to traders at Galleon. In re­sponse, Gupta asked the judge to ex­clude 26 record­ings of Ra­jarat­nam’s calls with var­i­ous per­sons, as well as the taped call be­tween the two of them, ar­gu­ing in fil­ings that they don’t re­late to his case and don’t con­tain any di­rect ev­i­dence. Ac­cord­ing to a source fa­mil­iar with the case, the calls could be a key fac­tor in the trial. The source, who asked not to be iden­ti­fied, said, “If the calls are al­lowed as ev­i­dence, Rajat Gupta will find it dif­fi­cult and the gov­ern­ment will win. If the judge rules the calls are not ev­i­dence, it will be a close call for the gov­ern­ment.” The last pre- trial hear­ing is sched­uled for May 16.

“The de­tails made public so far have com­pletely de­stroyed Gupta’s im­age,” says Vivek Wad­hwa, a fel­low at Stan­ford Univer­sity’s Rock Cen­ter for Cor­po­rate Gov­er­nance. “He was a leg­end, an icon of Amer­i­can in­dus­try, and the im­pact has been dev­as­tat­ing.” But he doesn’t see the im­age of the In­dian- Amer­i­can com­mu­nity or ex­ec­u­tives tak­ing a hit. “Ten years ago, it would have been very bad. But we’ve come too far for our im­age to be tar­nished now. It’s like say­ing the Bernie Mad­off scan­dal was bad for the whole Jewish com­mu­nity,” says Wad­hwa.

But some of Gupta’s ac­quain­tances may be dis­tanc­ing them­selves. Sev­eral prom­i­nent In­dian- Amer­i­cans de­clined to com­ment for this story. An In­dian- Amer­i­can Wall Street veteran, who did not want to be iden­ti­fied, said it was “not ac­cept­able be­hav­iour” to dis­close board meet­ing pro­ceed­ings, re­gard­less of whether the in­for­ma­tion was acted upon or not.

Gupta’s cfriends are ral­ly­ing to his de­fence. Atul Kanagat, who re­tired from Mckin­sey as a di­rec­tor and now lives in Sum­mit, New Jer­sey, ad­mits he was sur­prised to hear his friend and for­mer boss re­fer to a dis­cus­sion from a board meet­ing. “It’s not what you’d ex­pect from some­one of his stature.” But, he in­sists that “Gold­man had talked about it to 50- 60 in­vestors a cou­ple of days ear­lier” and that Gold­man con­sid­er­ing buy­ing Wa­chovia was “no longer a state se­cret”.

In other words, Gupta was not con­vey­ing what the street did not know. Gupta’s sup­port­ers also ques­tion the prose­cu­tors’ as­ser­tion that Gupta and Ra­jarat­nam were close friends. A few hun­dred guests were present at the wed­ding of Gupta’s el­dest daugh­ter at his West­port res­i­dence in June 2008, in­clud­ing fam­ily, friends and Gupta’s as­so­ciates and for­mer col­leagues. “I can tell you who wasn’t in­vited,” says Kanagat.

“Ra­jarat­nam, who is por­trayed as his bo­som buddy, he wasn’t there.”

Prose­cu­tors have high­lighted two other in­stances when Gupta al­legedly con­veyed in­sider in­for­ma­tion about Gold­man Sachs to Ra­jarat­nam— in Septem­ber 2008, when the com­pany’s board agreed to ac­cept a $ 5 bil­lion ( Rs 25,000 crore) in­vest­ment from War­ren Buf­fett’s firm Berk­shire Hath­away, and a month later, about the in­vest­ment bank’s quar­terly loss of $ 2 ( Rs 100) per share. FBI of­fi­cial Jan­ice Fedar­cyk says in these two cases, “a to­tal of 39 sec­onds elapsed be­tween his learn­ing of cru­cial Gold­man Sachs in­for­ma­tion and lav­ish­ing it on his good friend. That in­for­ma­tion ( cap­tured by FBI) was con­veyed by phone so quickly it could be termed in­stant mes­sag­ing.”

Fed­eral in­ves­ti­ga­tors have not pre­sented taped con­ver­sa­tions of Gupta dis­clos­ing in­for­ma­tion in the above two in­stances, as these calls were not made to Ra­jarat­nam’s cell­phone, which was the line be­ing tapped. How­ever, Naf­talis has ar­gued that the prose­cu­tors have “put the wrong man on trial” de­spite hav­ing di­rect wire­tap ev­i­dence of an­other source at Gold­man Sachs pro­vid­ing in­sider in­for­ma­tion to Ra­jarat­nam. Prose­cu­tors have in­formed Gupta’s lawyers that at least three other Gold­man Sachs


em­ploy­ees are cur­rently un­der in­ves­ti­ga­tion for pro­vid­ing in­sider in­for­ma­tion to Ra­jarat­nam. “There were a host of le­git­i­mate rea­sons for any com­mu­ni­ca­tion be­tween Mr Gupta and Mr Ra­jarat­nam— not the least of which was Mr Gupta’s at­tempt to ob­tain in­for­ma­tion re­gard­ing his $ 10 mil­lion ( Rs 50 crore) in­vest­ment in the GB Voy­ager fund man­aged by Mr Ra­jarat­nam,” says the lawyer, adding that his client lost his en­tire in­vest­ment in the fund, which “negates any mo­tive on Mr Gupta’s part to de­vi­ate from a life­time of pro­bity, in­tegrity and dis­tin­guished ser­vice.”

That’s a sen­ti­ment echoed by Gupta’s friends, who are con­vinced the for­mer Mckin­sey chief has been un­fairly dragged into the case in­volv­ing Ra­jarat­nam due to his high pro­file and stature. He is cur­rently out on a $ 10mil­lion ( Rs 50 crore) bond, se­cured by his West­port home, which is his pri­mary res­i­dence. He has at least three other prop­er­ties in the US— an apart­ment in Man­hat­tan, a va­ca­tion home in Florida and an­other in Colorado, de­scribed by friends as a “sim­ple, two- three be­d­room farm­house” sur­rounded by hun­dreds of acres of land. His houses, in fact, are his only weak­ness, ac­cord­ing to Kanagat, who calls Gupta an ama­teur ar­chi­tect. He is said to have spent con­sid­er­able time per­son­ally de­sign­ing the house in Florida, ex­pand­ing his West­port res­i­dence and re­mod­elling the Colorado home.

Gupta, iron­i­cally, wanted to get into pol­i­tics af­ter IIT Delhi, ac­cord­ing to Chan­dra Kiran, his class­mate and close friend from those years. Kiran, a re­tired IBM ex­ec­u­tive, now based in a Toronto sub­urb, re­calls both of them had talked about work­ing for so­cial change in In­dia. They were talked out of it and ad­vised to go abroad for fur­ther stud­ies by their eco­nom­ics pro­fes­sor, who is now a well- known politi­cian. That’s right, Subra­ma­nian Swamy.

Late last year, a few dozen friends of Gupta’s got to­gether in New York and de­cided to cre­ate a plat­form for his sup­port­ers and well- wish­ers. The re­sult was the web­site Friend­sofra­jat. com, which went on­line in Jan­uary. Among those who have posted mes­sages of sup­port for Gupta on the web­site are In­dian in­dus­tri­al­ist Mukesh Am­bani and Sabeer Bha­tia, the founder of Hot­mail.

Gupta will need all the help he can get. His le­gal de­fence is ex­pected to cost at least $ 5 mil­lion ( Rs 25 crore). But the pop­u­lar mood, in the wake of the ‘ Oc­cupy Wall Street’ protests and the cur­rent eco­nomic sit­u­a­tion, is not ex­actly sym­pa­thetic to high- fly­ing cor­po­rate ex­ec­u­tives. For­mer judge Hol­well notes that “the gov­ern­ment usu­ally wins in crim­i­nal tri­als”.

The le­gal courts will de­cide whether Gupta acted in a crim­i­nal man­ner, but his rep­u­ta­tion has al­ready been bat­tered in the court of public opin­ion.






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