ON THE EVENING OF 9 APRIL, a select group of Delhi’s dapper elite gathered at the ballroom of the Hyatt Regency. After about a half hour’s socialising, aided by an assortment of teas and starters, Chiki Sarkar, the co-founder of Juggernaut Books, introduced the evening’s speakers.
“Whenever we now think of Rajat Gupta,” she said, “we think of a simple question—did he or didn’t he?”
Juggernaut was releasing Mind Without Fear, Gupta’s memoir, which charts his rise to becoming the first Indian-origin managing director of McKinsey, and his subsequent felony conviction in a high-profile insider-trading scandal that shook business circles in 2012. The conviction resulted in a two-year prison sentence, which Gupta completed in 2016. After his release, Gupta sought to overturn his conviction, but in January this year, the Court of Appeals for the Second Circuit—one of the United States’ 13 appellate courts, which includes judicial districts in New York, Connecticut and Vermont—ruled against him. His memoir, and its accompanying media campaign, seemed to be a final attempt at public rehabilitation.
Until his conviction, though, Gupta’s story was the quintessential template of corporate success that Indian parents envision for their children before packing them off to an engineering college and, later, a business school. He was born to a middle-class family in Calcutta, in 1948. His father, Ashwini Kumar Gupta, was a journalist involved in the freedom struggle. The family soon moved to Delhi, where Ashwini helped start the Delhi edition of the Hindustan Standard, which was, incidentally, owned by Sarkar’s family, as part of their Ananda Bazar Patrika Group.
Gupta was orphaned at the age of 19, when he was still a student at the Indian Institute of Technology, Delhi. He began caring for his siblings with the help of an aunt who moved into their home, which he visited every weekend. Gupta ran the household on a strict budget while carrying on with his active campus life—he was a member of the dramatics club and head of the student government. In his final year, he applied to business schools while simultaneously sitting for campus placements, bagging and then rejecting a coveted job at what was then the Indian Tobacco Company—now ITC Limited—for Harvard Business School.
“One of the things that memoirs do is that they show you the man behind the CV,” Sarkar said. Mind Without Fear, she added, “tells you the story of a shy, diffident young student who goes to Harvard Business School, and when he first goes, he finds that he’s lagging—he’d always been a very brilliant student—because he doesn’t speak up as much as the other Americans do.”
Gupta would overcome this and other tribulations to land another enviable position right out of Harvard—that of a consultant at McKinsey and Company, reverently known in the management world as “The Firm.” There, he recalls in the book, Gupta proved himself multiple times over the next twenty years, eventually securing election as the managing director in 1994.
As applause for Gupta subsided at the launch, Sarkar introduced his interviewer for the evening: Madhu Trehan, the founding editor of India Today and a co-founder of the news website Newslaundry. Trehan warned the audience that despite the empathy she had for a man who had been through so much, it was her mandate as a journalist to ask tough questions. She quoted an old friend of Gupta’s who had commented that ever since Gupta finished his third term as managing director, in 2003, and returned to being a senior partner, his “sense of having lost sway and influence was palpable.”
Gupta clarified that it was he who had instituted term limits for the position, believing that every leadership position benefits from change and a rotation of responsibilities. “So I wasn’t hankering for the loss,” he said. “I could’ve become CEO of a number of different organisations, but that was not my objective. My objective was to put the skills I’d learnt, the leadership skills I’d developed and the network I’d developed to actually work for the good of society.”
During this period, Gupta co-founded the Indian School of Business; the American India Foundation, with the former US president Bill Clinton; the Global Fund to Fight AIDS, Tuberculosis and Malaria; and the Public Health Foundation of India. Around the same time, he became friends with Raj Rajaratnam, a Sri Lankan Tamil and fellow immigrant to the United States. This friendship would lead to his eventual disgrace, as Gupta was indicted for his business ties with Rajaratnam.
In the early 2000s, Rajaratnam was a Wall Street star and the owner of a multibillion-dollar hedge fund called Galleon. He had a reputation for being a talented trader with an incredible work ethic. Gupta met Rajaratnam through Anil Kumar, a senior McKinsey partner whom he had mentored and set up ISB with, and who had gone to business school with Rajaratnam. After consulting his close friends Hank Paulson and Gary Cohn—both holders of top economic posts in the US government and, respectively, the chief executive and president of Goldman Sachs—Gupta acted upon their positive endorsement of Rajaratnam’s character and entered into an investment with him in 2005.
The investment fund was called Voyager, and it was worth $50 million. A year later, Gupta and Rajaratnam started a venture called New Silk Route, aimed at investing in Indian companies. New Silk Route was to have two halves—one dedicated to private equity, and another to hedge funds—with Gupta as chairman. However, investors seemed to be against this two-pronged strategy, and there was talk of carving out the hedge-fund wing into Galleon International, perhaps as an arm of Galleon itself.
Six years after their first investment together, Rajaratnam was found guilty of insider trading. It turned out that his stratospheric success had less to do with his impeccable work ethic than with his well-placed friends within the corporate world. These friends, one of whom was Anil Kumar, would pass him confidential information—“tips”—about the goings-on at various Fortune 500 companies, for which they were paid generously, to the tune of millions of dollars, through dubious offshore channels. The investments Rajaratnam made based on the tips bore him over twenty million dollars—Galleon Group was worth $7 billion at its peak, in 2008—making for the biggest insider-trading scandal in history.
Proportionately, Rajaratnam received the longest ever sentence for insider trading. The lead prosecutor was Preet Bharara, then the US attorney for the southern district of New York, whose Twitter bio describes him as a “proud immigrant” and a “patriotic American.” In the anger that gripped the United States after the 2008 financial crisis, Bharara assumed the role of the crusading lawyer who would stop at nothing to punish those guilty of corruption and Wall Street crime, no matter where they were from. In his own memoir, Doing Justice: A Prosecutor’s Thoughts on Crime, Punishment and the Rule of Law, Bharara describes being criticised for being anti-Indian, since a number of his high-profile cases dealt with defendants of Indian origin, but he calls such criticism “colossally stupid,” since his team had “prosecuted a rainbow coalition of defendants and organisations” during his tenure.
Bharara was able to get Anil Kumar to agree to a plea bargain—a concept Gupta described at the launch as one of the biggest flaws of the American justice system, because it incentivises accused parties to testify against their co-accused in exchange for a lighter sentence. In an interview with the news channel NDTV in March this year, Gupta called himself a “political prisoner,” a pawn to service Bharara’s political ambitions. He referred to a book called The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives, written by the journalist Jesse Eisinger, in which Bharara was featured. The book’s title refers to prosecutors who never lose cases because they always choose the easy ones.
SOON AFTER HE WAS CHARGED, Gupta found himself frozen out by McKinsey. It was the only company he had ever worked for, and for 34 years. At that point, Gupta had only been accused, and all the evidence against him seemed circumstantial. His swift removal from the company’s alumni directory and the revocation of his McKinsey email account rankled, he writes, being “so uncharacteristic of the principled firm I’d always so deeply respected and antithetical to the partnership values.”
Gupta has steadfastly maintained his innocence, then and now. In the first twenty pages of his memoir, he acknowledges how ill-advised his relationship with Rajaratnam had been, despite the glowing endorsements. “He did have a certain arrogance, an above-the-rules air that should have been a red flag,” he writes. He blames his trusting nature, which had held him in good stead throughout his career. “Treat people as if they are worthy of trust and respect and they will prove themselves to be so. I wasn’t always right, but I’d been right so many times that it had become a point of pride—perhaps more so than I realised.”
In this case, Gupta was irrefutably wrong. His relationship with Rajaratnam had begun deteriorating ever since he learnt, in April 2008, that the latter had withdrawn nearly fifty million dollars from the fund without informing him. “Not only had Raj lied to me but his withdrawals had left the fund without a cushion in the turbulent markets, and eventually the banks shut it down,” he writes. “My entire stake looked like it was gone.” Rajaratnam, he adds, “continued to be evasive, telling me that he was working with the banks to try to recoup the equity, but by early 2009, it was clear that all such attempts had come to nothing. I was forced to accept that the money was gone, and that was the last I heard of Rajaratnam until the news of his arrest.” He asserts that his calls to Rajaratnam were not to provide him tips but “to try to figure out what had happened to the Voyager money.”
The prosecution built its case primarily around a series of phone calls between Gupta and Rajaratnam, most of which took place after board meetings of two companies in which Gupta was a director: Goldman Sachs and Proctor & Gamble. Soon after these calls, Rajaratnam traded the companies’ shares, profiting to the tune of five million dollars. Gary Naftalis, Gupta’s lawyer, was initially optimistic—there had never been an insider-trading conviction based on only circumstantial evidence. Naftalis maintained that the burden of proof lay with the government, and advised Gupta not to testify.
At the launch, Trehan asked him if he regretted his choice of lawyer. Seeming quite pained, Gupta answered, “So, he always insisted there was no case, and, if you look objectively, there was no case. You have to meet three things in insider trading: one is actual insider, market-moving information has to be passed; second is that there has to be real benefit, a quid-pro-quo arrangement; and the third is there has to be criminal intent. And they had proof of none of this.”
He said that the government had been tapping Rajaratnam’s phone for a year and a half, but there was not one recording of Gupta giving out insider information. “There was not a single witness. There was not a single email or communication they could find. They combed over my finances for certain years; they couldn’t find a single benefit. They kept claiming I owned 15 percent of Galleon International; I owned zero. They couldn’t prove any of it. I had forty years of board secrets; there was not ever any incident of me giving insider information. So there was no history. They couldn’t really prove criminal intent in any way. It’s not my practice. So Gary would say, ‘You’re innocent until proven guilty, and they have no proof.’ And I kept saying, ‘They are confusing the issue!’”
“So did you confront him about it?” Trehan asked.
“Of course I confronted him about it. He convinced me then not to testify, which I regret. I’m not sure if the outcome would’ve been different, because the government played a very clever strategy, which was to confuse the issue completely.” The court was inundated with mountains of irrelevant documents, he said, by a prosecution that “outmanoeuvred Gary, no question about it,” and kept presenting untruths in the absence of hard evidence. In the end, the jury—“consisting of, you know, hairdressers and babysitters and schoolteachers; only one juror had any experience with the financial world”—was bored, perhaps misled, into producing a guilty verdict.
Of the five counts of securities fraud and one count of general conspiracy that Gupta was charged with, he was found guilty of three counts of the former, as well as the conspiracy charge. After his appeal was rejected, in 2014, he went to prison, where he spent his time playing Scrabble and discussing the world’s problems with his fellow inmates. When his five-year-old granddaughters visited him in prison, they were told that he was staying in a camp. It was in prison that someone suggested he write his memoir, an appealing idea considering his silence throughout the trial.
Ever since his release, in 2016, Gupta has talked about reforming the US criminal-justice system. While in prison, he interviewed around forty of his fellow inmates, and concluded that a quarter of them should not have been incarcerated. He is disdainful of the absolute power that prison guards wield over the inmates, having been sent to solitary confinement twice—one time, for using a rolled-up towel to ease his back pain.
Gupta also met Rajaratnam in prison, strolling up to him one day to give closure to their past. Rajaratnam was still defensive about Voyager, but Gupta was eager to move on from the case. After all, Rajaratnam could have shaved five years off his 11-year sentence by testifying against him, but had not.
“Did you forgive him for cheating you out of $10 million, or for getting you into prison?” Trehan asked Gupta at the launch.
“I don’t think the two are necessarily unrelated,” Gupta said. “But, as I reflected on things… This actually comes from my experience with my own father. He went to prison during ten years in the freedom struggle, in and out of jails. I never heard him say a bad word about the British or his jailors. He embodied forgiveness, always. I don’t want to hold anything against [Rajaratnam]. I don’t like that.”
INSIDER TRADING IS THE PRACTICE of using confidential, “insider” information to make profits on the stock market. For example, if a director on the board of a company lets slip to his gardener the news of a soon-to-happen lucrative merger, the gardener can then leverage this information to buy up shares in the company at current prices and make a profit once the stock rises, after the information is made public.
This garden variety of insider trading is a felony under US securities law. It implicates both parties: the tipper and the tippee. The gardener, the tippee, is guilty of using material, non-public information to make a profit, which is unfair to other investors. But the director, the tipper, is also liable so long as two conditions are met—first, that he has violated his fiduciary duty of trust and confidentiality to the board by disclosing non-public information; second, that he has benefitted in some way, such as if his gardener has been generous enough to compensate him for the information.
These conditions come from the Dirks test, which emerged from the seminal 1983 insider-trading case Dirks vs SEC, and two subsequent cases. Raymond L Dirks was a securities trader and analyst at the Equity Funding Corporation of America, who passed on inside information in order to expose an accounting fraud. However, because some of his confidants used this information to avoid losses, he was charged with insider trading. He was eventually acquitted, establishing the precedent that one had to receive some personal benefit in order to be found guilty of insider trading.
By March 2008, federal authorities had gathered sufficient evidence of illegal profiteering by Galleon to procure a 30-day wiretap on Rajaratnam’s cell phone. It threw up enough incriminating material to justify extensions running well into the next year. During Rajaratnam’s trial, the prosecution submitted over eighteen thousand recorded conversations with over five hundred people. Among these was an 18-minute phone call between Gupta and Rajaratnam, on 29 July 2008. The recording was repeatedly played at both their trials, but Gupta was not charged for it.
There were four other phone calls for which Gupta was formally charged. The first took place on 12 March 2007, when he participated in a Goldman Sachs board meeting from the New Silk Route office, which was located in the same IBM building in Manhattan that housed the Galleon Group. Twenty-five minutes after the meeting ended, Rajaratnam told his traders to buy 350,000 Goldman shares. Due to insufficient evidence, Gupta was acquitted of this count, but it was important in establishing how close Rajaratnam and Gupta had grown, showing that the latter had a key card and easy access to Galleon’s office.
The second call was far more incriminating. On 23 September 2008, Gupta participated in a Goldman Sachs board meeting, which discussed an agreement by Warren Buffet’s firm, Berkshire Hathaway, to invest $5 billion in the bank, a major show of trust at the height of the financial crisis. The board unanimously approved the investment, and Gupta signed out of the meeting at 3.54 pm. Sixteen seconds later, records show, there was a call from his phone to Rajaratnam, which was not recorded by the wiretap. Following the call, Rajaratnam ran onto the trading floor and shouted at his employees, “Buy Goldman Sachs!” With two minutes to go to the close of trading for the day, Rajaratnam bought enough shares to net a million dollars in profit when he sold them the next day, after the news of the investment broke. He was heard gloating on the wiretap, “I heard something good might happen to Goldman.”
Gupta’s lawyers pointed out that Goldman stocks had been rising since 1 pm that day, and that it was not unusual for a man as busy as Gupta was to return phone calls immediately after a board meeting. He was, they said, looking to get in touch with Rajaratnam for some official documents regarding Voyager, which he had to submit to his own financial advisors at JP Morgan. He had entered the investment on such a conviction of trust that he did not use a signature authority.
The third call happened a month later, on 23 October. Again, it was immediately after a Goldman Sachs board meeting on the impending layoff of about three thousand employees. This time, the call took place after trading for the day had closed, but the next morning, Rajaratnam sold hundreds of thousands of shares within a minute of markets opening, to avoid losses of $3.6 million. In another call recorded on wiretap, he told a colleague that he had heard from “somebody who’s on the board of Goldman Sachs” that the company’s earnings statement, which “they don’t report until December,” indicated a loss of two dollars per share. “I’m gonna whack it, you know,” he told the colleague.
Again, the defence claimed that the news of the layoffs had been reported in that day’s Wall Street Journal, which indicated that the share price was going to drop. Gupta’s lawyers asserted that earnings were not even discussed at the meeting in question. However, Lloyd Blankfein, who was then the CEO of Goldman Sachs, testified that it was customary for him to discuss earnings at board meetings.
As for the phone call itself, Gupta maintains in his memoir that it was about the Voyager fiasco. “I don’t remember the exact conversation,” he writes, “but the general theme of our communications during that period was me pressing for a resolution but trying to be courteous, not wanting to alienate him, and him asking me to be patient, insisting that he was working on it.” Thus, in the summer and fall of 2008, it was unsurprising to Gupta that the first person on his call list was Rajaratnam. It was, he adds, the busiest period of his life, during which he struggled to keep up with the demands of his philanthropic work, his investment ventures and his various board positions. “That was the real story behind many of the events referenced in the charges,” he writes. “It was the story of a ridiculously busy, overstretched man trying to manage his personal financial affairs while also guiding numerous major companies and non-profits, at home and abroad, during one of the most volatile periods in our economy’s history.”
Gupta certainly had a more challenging time articulating his proof in court, especially that his relationship with Rajaratnam had indeed soured at the time of these conversations. He was found guilty for the two alleged tips, with a crucial part of the prosecution’s narrative centring on the call Gupta was not charged for—perhaps because there were no records of transactions immediately following the call.
This was the phone call on 29 July. In the conversation, Rajaratnam mentioned rumours he had heard of Goldman wanting to buy a commercial bank. Gupta confirmed the rumour, and added that it was discussed at the board meeting. “I cringed to think about this being played at the courtroom,” he writes. “In this instance, I should have been more careful.” Galleon was an important client for Goldman Sachs, and he told Rajaratnam that the bank would go for a good deal. “Perhaps I said more than was strictly appropriate for my role as a board member, but my motives were to support, not betray, the bank,” he writes. “Would anyone in the courtroom realise this though, when I was given no opportunity to explain myself?”
The even more damning part of the conversation took place a few minutes later, when they begin discussing their mutual friend, Anil Kumar. “I’m giving him a million dollars a year for doing literally nothing,” Rajaratnam said. Gupta responded, “I know, you’re being… I think you’re being very generous.”
“When I listened back to the tape, I could hear in my voice that I wasn’t fully taking in what Raj had said, or taking it literally,” Gupta writes. “Quite frankly, I was tired of their complaining about each other.” He adds that the payments could have been legitimate. “McKinsey had no explicit rule against partners advising friends or family members unless there was a conflict of interest that would take away work that the firm might otherwise do. Whatever the case, I just didn’t want to get into this with Raj—it was their business, not mine.”
Contrary to his account in the book, however, it was not Rajaratnam who called him, but Gupta’s secretary who called Rajaratnam, asking if he was free to speak to Gupta. When Rajaratnam mentioned the rumours, Gupta went on to answer his doubts by not only clarifying that it was “a big discussion at the board meeting,” but also by divulging how the board was split in opinion, and its motivations behind the purchase. He then confirmed the two companies being considered for acquisition—Wachovia and AIG.
They almost disconnected, before Gupta himself mentioned Anil Kumar. He seemed unhappy of late, Gupta said, which set Rajaratnam off on a lengthy complaint about their mutual friend’s greed.
Before Kumar had begun accepting money for tips to Rajaratnam, McKinsey had solicited Galleon as a client in the wake of its success as a hedge fund. Rajaratnam ignored their repeated emails, pulling Kumar aside one day to offer him half a million dollars for his exclusive “advice.” As these payments increased, so did the amount of confidential information Kumar passed him.
In 2006, Rajaratnam was one of the few on Wall Street to anticipate a deal involving the microchip companies AMD and ATI. Kumar was AMD’s McKinsey consultant, and Rajaratnam called him to express his gratitude, wanting to give him a million dollars as a bonus for this tip. Following Rajaratnam’s instructions, Kumar had set up a Swiss bank account for a shell company that would transfer the payments to a Galleon account under the name of Kumar’s housekeeper.
In the 29 July phone call, Rajaratnam alluded to such payments not once, but twice. The second time, he spelled it out. “Now, for the last three or four… I mean, four or five years, I’ve been giving him a million bucks a year, right?”
“Yeah, yeah,” Gupta chimed.
“After taxes, offshore cash.”
“Yeah, yeah.”
After they finished discussing Kumar, Gupta asked Rajaratnam if he had two more minutes. Despite his supposed anger with Rajaratnam, whose treachery in the Voyager matter had been thoroughly established by then, Gupta wanted some career advice—on whether he should accept a board position at the consultancy firm Kohlberg Kravis Roberts. Rajaratnam offered Gupta a well-rounded opinion, considering such aspects as managing the expectations of existing business partners and whether he would enjoy spending his time on KKR amidst his various other commitments.
Rajaratnam added that Galleon International could be one such commitment, to which Gupta quickly interjected, “By the way, I want us to keep having that dialogue as to how I can be helpful in Galleon International. By the way, not Galleon International, Galleon Group.”
“Galleon Group, right.”
“I mean, you’ve given a position in Galleon International. That’s good enough.”
“Yeah, but you know what, I’m now at a point where in the last couple of years, I’m building, right?”
“Yeah.”
“Rather than just making returns, and not building, right?”
“Right. Right.”
Sounding more than a little dismissive, Rajaratnam steered the conversation back to career advice.
THROUGH THE 29 JULY PHONE CALL, the prosecution was able to firmly cement two things. First, his claims of carelessness notwithstanding, Gupta surely broke the law by parting with confidential information about the Goldman Sachs board meeting. Bill George, a Goldman director, testified that the information passed on was confidential; Gupta had violated his fiduciary duty to the board. The first condition to establish insider trading had therefore been met.
Second, the prosecution was able to establish Gupta’s ability to receive some benefit from having passed on this information. Although he cites the millions of dollars in payment that Rajaratnam’s other informants received, and the total absence of any such compensation in his own financial records, as proof of his wrongful conviction, here was a conversation with Rajaratnam acknowledging Gupta’s position at Galleon International, and Gupta openly angling for one at Galleon Group. Any profits that Galleon made, therefore, would have been personally beneficial to him. The prosecution also furnished notes from the diary of one of Gupta’s financial advisors, with one entry stating, “Chairman, Galleon International. $1.3bn, owns 15% of it. Invests in long/short equity in Asia, entitled to performance fees.”
However, as Rajaratnam’s tone during the phone call indicated, he probably never intended to fulfil his promise, so the prosecution was never able to prove that Gupta owned part of Galleon. But it was able to prove an expectation of ownership, of future business together, amounting to an expectation of personal benefit. This, therefore, met the second condition to prove insider trading.
In 2012, Rajat Gupta’s trial made history for producing the first ever conviction for insider trading based on largely circumstantial evidence. In his appeal, Gupta challenged his conviction based on two errors he accused the trial court of making. First, the court had admitted the wiretaps of phone calls on 23 September and 23 October, in which Rajaratnam had confirmed to other Galleon traders that he had a source on the Goldman Sachs board. Gupta’s lawyers claimed that the statements of other Galleon traders were inadmissible hearsay because those traders were not part of any alleged conspiracy involving Gupta and Rajaratnam, or because their statements had not been made to further the conspiracy. Second, Gupta claimed that the court had excluded evidence proffered by Gupta in his defence.
The second circuit disagreed with both reasons. It agreed with the trial court’s decision that the wiretaps were admissible, since the prosecution had established that the conversations were in furtherance of a conspiracy, of which Gupta and Rajaratnam were not the only members. Also, Rajaratnam had incriminated himself in the phone calls by revealing that he had received tips that he had acted upon. Under the US Federal Rules for Evidence, declarations against one’s own pecuniary, proprietary and penal interests—admitting to having committed a felony falls under the third category—are admissible in court, even if they count as hearsay.
The exculpatory evidence Gupta claimed had been erroneously excluded by the court, in turn, centred on four points. First, the trial court had not allowed his daughter Geetanjali to testify about his state of mind regarding Rajaratnam, based on a conversation she had had with Gupta on 20 September 2008. The appellate court found that this decision had not been irrational or arbitrary—Rajaratnam’s treachery in the Voyager matter had already been established through other evidence, and Geetanjali had no personal knowledge about Voyager, so allowing her to testify would have only served to prejudice the jury in Gupta’s favour. Since her testimony would not have served any purpose other than confirming undisputed facts, the court held that even if excluding it was erroneous, it would have been a harmless error.
Second, Gupta had argued that Rajaratnam had another informant on the Goldman board: David Loeb, a vice-president in the company. He had sought to include taped conversations and emails that established that Loeb had passed inside information about the technology companies Intel and Apple to Rajaratnam. Like Gupta, Loeb was on Rajaratnam’s list of ten people who were always to be put through to him, no matter what he was doing. However, the trial court had refused to include this evidence, on the grounds of hearsay, relevance, lack of foundation and the likelihood that the documents would confuse the jury.
The appellate court respected the trial court’s discretion in excluding the evidence. Moreover, it argued, Gupta had not proffered any evidence to show that Loeb was privy to the confidential information that had been passed to Rajaratnam on 23 September and 23 October. In fact, Loeb was part of the securities division at Goldman Sachs, which was kept separate—both physically and technologically—from the equity-capital division, which had developed the Buffett deal. Rajaratnam’s assistant had also testified that the man who called asking to speak to him urgently before the markets closed on 23 September was not Loeb. Further, the only call Rajaratnam received in the ten minutes before 4 pm that day came from Gupta’s phone.
The third and fourth points regarded, respectively, the exclusion of parts of the financial advisor’s diary that established Gupta’s charitable intentions and the trial court’s refusal to allow him to call character witnesses to testify to his integrity. Again, the appellate court refused to accept that the judge had abused his discretion on these matters.
The next opportunity that Gupta had to exonerate himself was after his release from prison. In a recent case, United States vs Newman, the second-circuit court had reversed two convictions of insider trading. Gupta’s lawyers claimed that the reversal was based on the concept that personal benefit should be tangible, consequential and of a pecuniary or valuable nature. They argued that the judge in Gupta’s case had biased the jury with his instruction that it would suffice to establish a personal benefit if Gupta’s purpose had been simply “maintaining a good relationship with a frequent business partner.” However, as with Gupta’s appeal, the court upheld the original verdict, finding that the judge’s instructions were consistent with the Dirks test, and noting that the formulation of what constitutes personal benefit in the Newman case had been expressly rejected by the Supreme Court in a subsequent ruling as being inconsistent with Dirks. The only way that he could now overturn his conviction was by proving actual innocence, rather than legal insufficiency. Gupta could not.
IN MIND WITHOUT FEAR, Gupta is able to present his story on his own terms. He can mention repeatedly that he was given no opportunity to explain himself, even though it was ultimately his decision not to do so. While he has admirably, even presciently, tried to address in the book any holes that one might poke in his narrative, there is only so much that 315 pages can hold, especially when it also includes his personal and professional history, and all his philanthropic endeavours. For instance, the mention of another organisation Gupta co-founded, called Mindspirit, slips through its pages.
Mindspirit was founded by Gupta and Kumar, in 2001, when the former was still the managing director at McKinsey. It was established in their wives’ names, purportedly to handle their families’ investments. However, in the same year, Mindspirit entered a consulting agreement with InfoGroup, “to provide advice and guidance” to its head Vinod Gupta—no relation—a graduate of IIT Kharagpur and a co-founder of the American India Foundation.
In 2011, McKinsey’s director of communications told Bloomberg News that “it had always been a clear violation of our values and professional standards for any firm member to provide consulting or advisory services outside of McKinsey for personal monetary gain.” However, there was no explicit rule to this effect in the “Firm Policies” document that McKinsey consultants had to sign, as of 2008.
In complaining about the partnership values McKinsey corroded in “excommunicating” him from the firm even before he was found guilty, Gupta ignores that it was the violation of these very values, on multiple fronts, that the 29 July phone call embodied, killing McKinsey’s appetite to debate the rights and wrongs of his situation.
In the book, Gupta establishes his early sense of Rajaratnam’s above-the-rules air. He also says of that phone call, “This was early in the Voyager saga, and although Rajaratnam was being evasive about providing information, our relationship had not yet deteriorated to the point that he avoided my calls.” By the end of October, “our relationship was strained, to put it mildly,” he writes, “but Raj tried to placate me, suggesting, as he’d planned with his colleague, that he could make a deal with the banks to recoup our money.”
Although he had documentary proof of Rajaratnam’s deception by 4 July, and of his own $10-million loss in Voyager by 16 October, there was still the friendly 18-minute phone call, in which the two discussed Goldman, Anil Kumar and his payments, and Gupta’s potential career at KKR and Galleon. By assigning the broad dates of “spring 2008” and “mid-to-late October 2008” to his discovery of the Voyager fiasco, the book maintains a semblance of internal consistency. Gupta is able to freely move back and forth in the narrative, explaining one call as friendly, but the subsequent ones as belaboured.
Unfortunately for Gupta, it was the jury’s job to scrutinise his version of events, and it did. Gupta was charged in relation to four phone calls, on 12 March 2007, 23 September and 23 October 2008, and 29 January 2009. The 12 individuals Gupta belittles as a collection of “hairdressers and babysitters and schoolteachers” sifted through piles of evidence and managed to segregate these calls into two types: those that implicated Gupta beyond reasonable doubt, and those that did not. The 23 September and 23 October calls were of the former type.
In addition to the count established by the 12 March call, Gupta was found not guilty of indulging in insider trading through the 29 January call, even though it had followed the same pattern as the others. Gupta called Rajaratnam after a Proctor & Gamble board meeting, in which the previous quarter’s losses were discussed. Rajaratnam shorted his shares, avoiding a loss of half a million dollars. This time, however, Gupta was able to present a witness to testify that his relationship with Rajaratnam had soured by this point. This witness was Ajit Jain, Buffet’s right-hand man at Berkshire Hathaway, to whom Gupta had opened up earlier in January 2009 about his fallout with Rajaratnam.
Gupta worries about the jury in his book: “Would they be able to follow the complex discussions of securities law, trading processes, business deals and more?” However, Sandipan Deb, a former editor at the Financial Express who has written a book about Gupta’s trial, told me, “in this case, there wasn’t much financial nitty-gritty to understand, really. One didn’t have to understand what financial derivatives are or anything. It was a pretty simple case, of giving you information that others are not privy to, so that you can make a quick buck before others come to know of it.” In fact, the foreman of the jury said at the time, “We looked at him and what he had done professionally. We were hoping he would walk out of this courthouse.” However, “on the counts we convicted, we felt that there was enough circumstantial evidence that any reasonable person could make that connection.”
The judge in Gupta’s trial was Jed Rakoff, reputed to be one of the fairest in the second circuit. He disallowed the use of the words “malaria,” “tuberculosis” and “AIDS” in court, and also barred portions of the diary of Gupta’s financial advisor that referenced his intention to give away 80 percent of his wealth to charity. Rakoff instructed the jury not to be swayed by Gupta’s reputation, arguing that the history of the world was filled with good men who did bad things. However, once the jury pronounced its verdict, he was permitted to take into account that reputation during sentencing. Over four hundred people—ranging from Bill Clinton and the former United Nations secretary general Kofi Annan to Gupta’s barber, domestic help and personal trainer—wrote to the judge, attesting to Gupta’s character. Rakoff observed during the sentencing, “The court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need.”
“No one who has met Gupta would think he is capable of this,” Deb told me. “When you meet him, he just comes across as a humble guy. If you talk to anybody who knew him—his friends, associates—many of them would still be in denial. Even I couldn’t believe it, before I started researching it.”
Indeed, Gupta seems to embody humility and authenticity. In interviews, he speaks in a measured tone and often delivers thoughtful, self-effacing answers. Touting his giving, trusting nature as the reason for his success makes it easier for the listener to believe that it was this same nature that landed him in prison. It lends him credibility when he then goes out of his way to criticise someone, such as Bharara or Kumar.
While at Harvard, soon after Gupta grew comfortable with speaking up in class, he began to be ignored by his professor, who told him that his complex ideas were confusing the classroom. Finding it unfair that he was being disadvantaged for his advanced understanding, Gupta proposed to the professor, “Grade me on only my final exams and I’ll stay quiet in class.” He was one of two students who got an “Excellent” grade in the subject.
At IIT Delhi, Gupta was rejected in the first round of ITC’s group interviews. He felt “galvanised by the sense of unfairness,” believing he was a worthy candidate, and told the interviewer, “Excuse me, sir, but I think you are making a mistake.” The move worked, as it did two years later, when he was initially rejected by McKinsey. This time, a professor found him troubled in class. He sent McKinsey a three-sentence recommendation, urging them to interview Gupta again.
Any respect Gupta may have had for Rajaratnam as a fellow immigrant and successful businessman perhaps stemmed from a genuine appreciation for Rajaratnam navigating challenges in a seemingly unfair, often alien, world. It may even have fit into his idea of a meritocratic worldview, where the person who best uses whatever he can get should succeed the most.
Gupta has clarified in multiple interviews what his memoir is not—that it is not an attempt to clear his name in the court of public opinion, but merely to tell his side of the story. By talking about his professional life, he hopes that readers would learn from his experiences. However, the story of his long career is sandwiched between Gupta’s experience of the trial and prison, in which he presents himself as a maligned innocent. As Deb put it, “He has had seven years to spin a story.”
The first time Gupta was sent to solitary confinement, it was as punishment for bending down to tie his shoelaces just as a correctional officer was commencing his check. “It doesn’t take much at all,” he writes. “A moment of carelessness. A misjudgement. Bad timing.” The phrases have the striking effect of doubling up as an encapsulation of Gupta’s entire defence, in the book and in the media. However, this argument does not apply as neatly to his crime, leaving one to wonder about the not-so-thin line between understandable human error and a deliberate antipathy for rules and values.
Gupta met his difficulties in prison with stoicism, wanting to emulate his father, who contracted the tuberculosis that would end his life while he was jailed by the British. While still in Calcutta, Ashwini Kumar Gupta had privately tutored college students. One day, an invigilator at a Calcutta University examination caught him in dark glasses, impersonating one of his students to help him pass the exam, in exchange for money that would go to the revolutionary cause. Here was another admirable man with a blameless reputation, marred by a single infraction, perhaps committed with the belief that it was the right thing to do.
This dichotomy in character and crime, as Rakoff said, “presented the fundamental problem of this sentence, for Mr Gupta’s personal history and characteristics starkly contrast with the nature and circumstances of his crimes.” Proving a motive was never a necessary legal element of Gupta’s offence, but the question lingered: why would the poised, bespectacled man on stage at the Regency ballroom get caught up in such a typically avaricious act? In his sentencing order, Rakoff permitted himself to speculate:
Having finished his spectacular career at McKinsey in 2007, Gupta, for all his charitable endeavors, may have felt frustrated in not finding new business worlds to conquer; and Rajaratnam, a clever cultivator of persons with information, repeatedly held out prospects of exciting new international business opportunities that Rajaratnam would help fund but that Gupta would lead. There is also in some of the information presented to the court under seal an implicit suggestion that, after so many years of assuming the role of father to all, Gupta may have longed to escape the straightjacket of overwhelming responsibility, and had begun to loosen his self-restraint in ways that clouded his judgment. But whatever was operating in the recesses of his brain, there is no doubt that Gupta, though not immediately profiting from tipping Rajaratnam, viewed it as an avenue to future benefits, opportunities, and even excitement. Thus, by any measure, Gupta’s criminal acts represented the very antithesis of the values he had previously embodied.
At the launch, Trehan reflected on a portion of the memoir where, having lost everything he once held so dear, particularly his reputation among his friends and colleagues, Gupta realises that one is only unhappy as long as one remains attached to such concepts. Detachment from reputation is liberating. “How is that possible?” she asked. “Isn’t reputation your conscience?”
“I think, to me, they are two very different things,” Gupta said. “Reputation is other people’s view of you, whereas conscience is your own.” He said letting go of reputational concerns was liberating “because I don’t have to conform to some view just because other people want me to. That doesn’t mean that I don’t care about doing the right things. That doesn’t mean that I want to knowingly commit a crime. That just means I want to do the right thing and I don’t care whether it creates a good reputation, a so-so reputation or even a bad one—as long as I’m doing the right thing.”