Rajat Gupta – An Indian success story gone awry
Rajat Gupta is the son of an Indian independence hero. He often quoted Gandhi as an inspiration, made his way from the lower middle class roots in Kolkata to the elitist Harvard Business School and went on to become the first non-US born Managing Director of McKinsey. The Indian technocrat emerged as one of the world’s most trusted adviser to chief executives around the world and was the perfect example of the great Indian dream until it turned into a nightmare.
The former head of McKinsey, who also served three three-year terms as the director of Goldman Sachs, has been charged with one count of conspiracy and five counts of securities fraud in civil and criminal complaints levelled last month and faces 20 years in prison on each count of securities fraud. Gupta is also accused of extensive business entanglements with Rajaratnam, a hedge fund billionaire and owner of Galleon.
Indicted for insider trading, the highest ranking corporate executive is said to have disclosed material nonpublic information to Rajaratnam concerning Berkshire Hathaway Inc’s $5 billion investment in Goldman Sachs before it was publicly announced on 23 September 2008. Gupta also provided material non-public information concerning Goldman Sachs’s financial results to the Indian hedge funds trader for both second and fourth quarters of 2008.
Rajaratnam caused heavy losses to various Galleon hedge funds he managed by disclosing material nonpublic information, and generated illegal profits of more than $23 million. In addition, Gupta disclosed material nonpublic information concerning Procter & Gamble’s financial results to Rajaratnam for the quarter ending December 2008. Rajaratnam relayed this information to other traders at Galleon, who in turn caused Galleon funds to trade on basis of that information, generating illicit profits of over $570,000.
Raj Rajaratnam has been accused of masterminding the biggest insider trading scam in US history and has been sentenced to 11 years in prison, considered as the longest sentence for insider trading.
Circles in India have met the indictment of the fallen hero with mixed reactions. Business leaders are aghast. Those who follow Gupta and consider him as a role model are shocked and embarrassed about the whole situation. “Logic defies as to why a respectable and successful man like him would risk his reputation by sharing confidential information with a hedge fund manager,” an admirer of the disgraced Indian technocrat argued.
Many pundits insist Gupta was a rare businessman whose integrity was considered beyond reproach as he raised millions for charity, hung out with the Prime Minister of India, and attended President Barack Obama’s first state dinner at the White House.
Rajat Gupta was entrusted by some of the premier American business institutions to attend their boardroom meetings and receive confidential information so that he could give advice and counsel for the benefit of their shareholders. Following the scandal, Gupta has now been removed from prominent corporate and philanthropic boards which he once served and is shunned by business leaders who were once his close friends.
Unfolding of this Wall Street drama has given air to a misleading notion on the values of the South Asian community. Writing in Newsweek, Suketu Mehta, the author of “Maximum City”, attempted a multi-layered sociological explanation, claiming that “the whole story speaks of the South Asian-American community”. “Its pursuit of success and money at any cost. The differences between immigrants and the first generation,” he wrote in the magazine article.
Critics have rubbished Mehta’s explanation. They insist that attribution of an individual’s behavioural pattern to a particular community is simply ridiculous. If anything, the central characters in the story have spent much of their adult lives in the US and are products of American institutions, from McKinsey and JP Morgan Chase to Harvard and Wharton.
Though the allegations against Gupta have caused permanent damage, his creation of world class institutions like Indian School of Business and the Public Health Foundation of India will always be acknowledged. As much as the legacy of Gupta may become one of corporate greed, part of it will always be about stellar contribution to his country of birth.
Gupta surrendered on Wednesday morning to the Federal Bureau of Investigation. He pleaded not guilty to all charges and was released on a $10 million bond secured by his 2.3 acre home in Westport, Conn., which is currently appraised at $12.5 million.
Sources – Business Week and WSJ