Insider trading case: Rajat GuptaSangam Lalsivaraju_sec-c_138Rajat Kumar Gupta was born 2 December 1948 in Kolkata is an Indian American businessman whowas the managing director (chief executive) of management consultancy McKinsey & Company from1994 to 2003 and a business leader in India and the United States.His father was a journalist for Ananda Publishers. His father was a prominent freedom fighter and hadbeen jailed by the British for his efforts. When Gupta was five the family moved to New Delhi, wherehis father went to start the newspaper Hindustan Standard. Guptas father died when Gupta wassixteen.He was a student at Modern School in New Delhi. After high school, Gupta ranked 15th in the nationin the entrance exam for the Indian Institutes of Technology, IIT JEE. He received a Bachelor ofTechnology degree in Mechanical Engineering from the Indian Institute of Technology, Delhi (IIT-D)in 1971. Declining a job from the prestigious domestic firm ITC Limited, he received an MBA fromHarvard Business School (HBS) in 1973, where he was named a Baker Scholar.McKinsey & CompanyGupta joined McKinsey & Company in 1973 as one of the earliest Indian-Americans at theconsultancy. He was initially rejected because of inadequate work experience; a decision that wasoverturned after his Harvard Business School professor Walter J. Salmon called Ron Daniel, and thenhead of the New York office and later also the managing director of McKinsey, on Guptas behalf.Gupta began his career in New York before moving to Scandinavia to become the head of McKinseyoffices in 1981. He did well in what was then considered a "backwater" area; this is where he firstmade his mark. Elected senior partner in 1984, he became head of the Chicago office in 1990. In 1994he was elected the firms first managing director (chief executive) born outside of the US, and re-elected twice in 1997 and 2000. In this capacity, he was considered the first Indian-born CEO of amultinational organization.During Guptas time as head of McKinsey, the firm opened offices in 23 new countries and doubledits consultant base. His successor Ian Davis was elected by "emphasizing the need for a return to theMcKinsey heritage”. This was seen as a reaction against Guptas aggressive firm expansion. It wasalso a time of perceived shifting of standards. Enron, closely identified with McKinsey, collapsedduring Guptas tenure. During the dot-com bubble he and Anil Kumar created a program forMcKinsey to accept payment from its clients in stock. Guptas accountability for the shifting ofstandards was weighed differently by different observers.After completing three full terms (the maximum allowed, by a rule he had himself initiated) andnearly a decade as head of the firm, Gupta became senior partner again in 2003 and senior partneremeritus in 2007. Gupta is widely regarded as one of the first Indians to successfully break throughthe glass ceiling, as the first Indian-born CEO of a multinational corporation (not just a consultancy).Outside McKinsey & CompanyIn 1997 Gupta co-founded the Indian School of Business (ISB) with friend and fellow senior partnerAnil Kumar. The school was ranked number 13 in the world by The Financial Times in its "GlobalMBA Rankings 2011". Gupta and Kumar have both since resigned as chairman and executive boarddirector respectively.
Before stepping down as managing director he co-founded Scandent Solutions with Ramesh Vangaland the American India Foundation with Victor Menezes and Lata Krishnan. After McKinsey Guptaco-founded and chaired the private equity firm New Silk Route, formerly named Taj Capital Partners,with ParagSaxena and Victor Menezes.Gupta has served on many corporate boards during his career. He became a member of the Procter &Gamble board of directors in 2007, and held that post until March of 2011. He was also a director forinvestment firm Goldman Sachs from 2006 until the expiration of his term in 2010. Gupta was alsothe non-executive chairman of Genpact from 2007 until March 2011. He also served on the board ofAMR, the parent company of American Airlines, from 2008 until 2011, and on the board of HarmanInternational from 2009 to 2011.Gupta has also served on the board of Russian bank Sberbank, and asa managing advisor to Symphony Technology Group.Gupta has also served as a director of various financial groups. In addition to his work at GoldmanSachs, Gupta served as an advisory partner with Fjord Capital Parners and as chairman of the advisoryboard for Clutch Group. Gupta was also a member of the advisory board for OmniCapital Group.PhilanthropyGupta’s philanthropic, charitable, and volunteer efforts mainly focus on the areas of education, globalhealth, and global business.In the past, Gupta has been involved with a number of universities and other educational institutions,volunteering and serving as chairman and member of several boards and councils. As of 2011, he haseither resigned or taken leaves of absence from the boards on which he served as director or chairman.In June, 1995, Gupta was elected to the University of Chicago’s Board of Trustees. He also served asa member of the Yale President’s Council.Gupta co-founded the Indian Institute of Technology Alumni Association. He also chaired the Boardof Directors and served on the Advisory Board.With Anil Kumar, Gupta co-founded the Indian School of Business, and under his chairmanship ofthe governing and executive boards the school became one of the leading business schools in theworldInsider trading trialOn March 1, 2011, the SEC filed an administrative civil complaint against Gupta for insider tradingwith billionaire and Galleon Group founder Raj Rajaratnam. Coverage of the event noted that AnilKumar — who, like Gupta, had graduated from IIT, was a highly regarded senior partner atMcKinsey, and had also co-founded the Indian School of Business — had already pleaded guilty tocharges in the same case. Gupta, Kumar, and Rajaratnam were all close friends and business partners.Gupta countersued and both sides eventually dropped.On October 26, 2011 the United States Attorneys Office filed criminal charges against Gupta. He wasarrested in New York City by the FBI and pleaded not guilty. He was released on $10 million bail onthe same day. Guptas lawyer wrote, “Any allegation that Rajat Gupta engaged in any unlawfulconduct is totally baseless .... He did not trade in any securities, did not tip Mr. Rajaratnam so hecould trade, and did not share in any profits as part of any quid pro quo.” The SEC alleged, "The tipsgenerated illicit profits and loss avoidance of more than $23 million." Manhattan U.S. AttorneyPreetBharara said, "Rajat Gupta was entrusted by some of the premier institutions of American
business to sit inside their boardrooms, among their executives and directors, and receive theirconfidential information so that he could give advice and counsel.Gupta was also accused of leaking information about Procter & Gamble, where he was also a director.The Indian-born executive, who served on the boards of the Rockefeller Foundation and the Bill &Melinda Gates Foundation, is the biggest conviction since Rajaratnam in a case that has sparkedarrests from Wall Street to Silicon Valley.So far 66 cases have been brought against people involved in the insider dealing associated withGalleon, once a $7bn hedge fund. He is the 62nd person to be convicted or to have pleaded guilty outof 68 people charged since 2009. So far no-one charged has been found not guilty.The case brought by Manhattan US attorney PreetBharara controversially used wiretaps to gatherevidence, a technique more usually associated with mafia cases.Guptas lawyers had objected to the use of information gathered in wiretaps, but district judge JedRakoff ruled that prosecutors could play three tapes for jurors.The prosecution never accused Gupta of personally trading on inside information but argued hebenefited from his stake in Voyager, an investment firm he set up with Rajaratnam which invested inGalleon funds. The defense argued that there was no evidence that Gupta profited, or traded on, anyalleged tip and said Gupta had considered suing Rajaratnam over Voyager, which failed.Rajaratnam was caught on dozens of wiretaps discussing inside information and trades he had made,but the evidence against Gupta was far less compelling. The prosecution offered only one substantiveconversation between the two men, and Rajaratnam did not trade on the information prosecutorsalleged was shared.He was convicted of insider trading. In simple words, he leaked confidential boardroom discussionsof major companies on the board of which he served. In most examples cited by prosecutors, hewould make a phone call to now convicted financial scammer Raj Rajaratnam tipping him ofconfidential information and within minutes Rajaratnam would buy or sell shares of that company.what we learn from this case: If a system is strong enough and fair enough for people from any part of the world to excel, same system can come back to bite you if you are on the wrong side of the law. When you do good work, you directly or indirectly bring glory to your community, country of origin and institution, and same is true when you are convicted of crimes. No individual is above the law, and one should try to maintain highest level of ethics in all actions, which is actually more stringent than simply following all laws of the land. Your past record and accomplishments may not help you in the future for your present crimes. Choose your friends well. Do not make phonecalls to potential criminals, not at all after confidential company meetings, where that criminal has financial interests. Know the laws. Of course Gupta knew all the laws he violated. However as an average international student and as a new immigrant, make extra efforts to know the laws of the land. Ignorance of law is never a good excuse. Finally, Rajat Gupta is a perfect example of how any young person should begin and lead his professional life. But the sad end of his professional life teaches us to be very careful and ethical in all that we do.