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Rajat Gupta Convicted of Insider Trading
By PETER LATTMAN and AZAM AHMED
Former Goldman Sachs Group member Rajat Gupta was convicted Friday of
insider trading.Andrew Kelly/ReutersFormer Goldman Sachs Group member Rajat
Gupta was convicted Friday of insider trading.
Rajat K. Gupta, the retired head of the consulting firm McKinsey & Company
and a former Goldman Sachs board member, was found guilty on Friday of
conspiracy and securities fraud. He is the most prominent business executive
convicted in a wave of prosecutions that followed the government’s
sweeping investigation into insider trading on Wall Street.
After a monthlong trial, a jury of eight women and four men took only two
days to deliberate before reaching a verdict. The jury found Mr.
Gupta guilty of leaking confidential information about Goldman to his former
friend and business associate, the fallen hedge fund titan Raj Rajaratnam,
on three different occasions in 2008. He was also convicted of conspiring in
an insider trading scheme with Mr. Rajaratnam.
Mr. Gupta was found not guilty of two instances of tipping Mr.
Rajaratnam, including an allegation that he divulged secret news about
Procter & Gamble, where he also served on the board.
“Having fallen from respected insider to convicted inside trader, Mr. Gupta
has now exchanged the lofty board room for the prospect of a lowly jail
cell,” Preet Bharara, the United States attorney in Manhattan said in a
statement.
“Almost two years ago, we said that insider trading is rampant, and today’
s conviction puts that claim into stark relief. ”
After the verdict was read, Mr. Gupta, 63, remained stoic, his face
expressionless. Just behind Mr. Gupta, his wife, Anita, buried her head in
her hands, leaning against a bench in the courtroom. His four daughters, who
had squeezed into the front row of the spectators’
gallery each day during the trial, loudly sobbed and consoled one another.
Several jurors were crying as they left the courtroom.
Jed S. Rakoff, the judge in the case, set sentencing for Oct. 18 and said he
was inclined to set Mr. Gupta is free on bail until then.
Mr. Gupta faces a maximum sentence of 25 years in prison, but will likely
serve less time than that. Mr. Rajaratnam, the former head of the Galleon
Group hedge fund who was convicted of orchestrating a huge insider trading
conspiracy last year, is serving an 11-year jail term.
Mr. Gupta is one of the 66 Wall Street traders and corporate executives
charged with insider trading crimes by Mr. Bharara, since 2009. Of those, 60
have either pleaded guilty or been found guilty.
Juries have now convicted all seven who have taken their cases to trial.
Article Tools
The outcome in Mr. Gupta’s trial was a substantial victory for the
government. There had been a big question mark whether prosecutors could win
a case built largely on circumstantial evidence – phone records and
trading logs –of the defendant’s guilt. No witness testified to the
contents of any calls between Mr. Gupta and Mr.
Rajaratnam. The case lacked the dozens of incriminating wiretaps that
prosecutors played at Mr. Rajaratnam’s trial.
The criminal charges against Mr. Gupta, which were brought last October,
stunned the global business world. Not since last decade’s corporate crime
spree, when Enron’s Jeffrey K. Skilling and WorldCom’s Bernard J. Ebbers
received lengthy prison terms, or the Wall Street scandals of the late 1980s
that led to jail time for the financiers Michael Milken and Ivan Boesky,
had a corporate executive fallen from such lofty heights.
Mr. Gupta, a native of Kolkata, India, was orphaned as a teenager.
After earning an engineering degree, Mr. Gupta moved to the United States
after receving a scholarship to Harvard Business School. He then landed a
job at McKinsey, the elite management-consulting firm.
In 1994, at age of 45, Mr. Gupta was elected the global head of McKinsey,
the first non-American-born executive to run the firm.
In 2007, after nearly four decades of dispensing business wisdom to
corporate chieftains and government leaders, Mr. Gupta retired from McKinsey
and became highly sought after as a public-company director.
He joined the boards of some of the world’s most well-known companies,
including Goldman and Procter & Gamble.
In recent years, Mr. Gupta had also devoted much of his time to humanitarian
causes, raising millions of dollars to combat AIDS, tuberculosis and
malaria. He served as an adviser to both the Bill and Melinda Gates
Foundation and the Clinton Global Health Initiative.
When President Obama hosted his first White House state dinner in 2009,
honoring a visit by India’s prime minister, Mr. Gupta and his wife, Anita,
were on the guest list.
The jury appeared to reject one of Mr. Gupta’s central defenses: That it
was inconceivable that a person of Mr. Gupta’s station would risk
destroying his career by passing along a handful of boardroom secrets.
To bolster this point, the defense put on six character witnesses who told
the jury about Mr. Gupta’s sterling reputation, unimpeachable integrity,
and extensive charitable works.
“Having lived a lifetime of honesty and integrity,” said Gary P.
Naftalis, a lawyer for Mr. Gupta, in his opening statement, “he didn’t
turn into a criminal in the seventh decade of an otherwise praiseworthy life
.”
Yet the government, which was represented by federal prosecutors Reed
Brodsky and Richard C. Tarlowe, countered with powerful, if at times tedious
, evidence that Mr. Gupta brazenly divulged confidential discussions by the
boards of both Goldman and P.&G. to Mr. Rajaratnam.
Prosecutors built their case around phone records, trading logs, instant
messages and e-mails that showed a pattern of insider trading.
Mr. Gupta would participate in Goldman board calls, and soon after
disconnecting from those calls – sometimes within minutes – Mr. Gupta
would call Mr. Rajaratnam. Mr. Rajaratnam would then trade shares in Goldman
based on Mr. Gupta’s tips.
The circumstantial evidence was bolstered by three telephone conversations
between Mr. Rajaratnam and Galleon colleagues that were secretly recorded by
the F.B.I. On those wiretapped calls, Mr.
Rajaratnam boasted that he had traded Goldman stock because he had a source
inside the bank.
“I heard yesterday from somebody who’s on the board of Goldman Sachs that
they are going to lose $2 per share,” Mr. Rajaratnam said on one of those
calls, from October 2008.
During his closing arguments, Mr. Brodsky, a prosecutor, called this “
perfect evidence of insider trading.”
Goldman was on center stage – and in an uncomfortable spotlight – through
much of the case. Several of the bank’s top officials testified during the
trial, including Lloyd C. Blankfein, its chief executive.
Called to the witness stand by the prosecution, Mr. Blankfein described the
secrecy surrounding Goldman board meetings. There was substantial testimony
about the Warren E. Buffett’s $5 billion investment in Goldman Sachs during
the financial crisis, news that Mr. Gupta allegedly leaked to Mr.
Rajaratnam before it was publicly announced.
Preet S. Bharara, the United States attorney in Manhattan.Daniel Barry for
The New York TimesPreet S. Bharara, the United States attorney in Manhattan.
The defense also maligned Goldman throughout the trial, suggesting that the
close business ties between Goldman and Galleon meant that there were
numerous sources at the bank feeding inside tips to Mr.
Rajaratnam.
“The wrong man is on trial,” Mr. Naftalis, Mr. Gupta’s lawyer, told the
jury.
The case has been a major embarrassment for the executives at McKinsey,
which Mr. Gupta ran from 1994 to 2003. A trusted adviser to Fortune 500
companies, McKinsey counts among its alumni Sheryl Sandberg, the chief
operating officer of Facebook, and James Gorman, the chief executive of
Morgan Stanley.
“McKinsey’s core business principle is to guard the confidential and
private information of its clients,” said a former McKinsey executive who
only spoke on the condition of anonymity. “It is mind blowing that the guy
who ran the firm for so many years could be going to jail for violating that
principle.”
Mr. Gupta’s alleged illegal conduct started after he retired from McKinsey.
In 2007, Mr. Gupta left behind the staid world of management consulting and
turned his focus to Wall Street.
It was then that Mr. Gupta fell in with Mr. Rajaratnam, who he originally
met through philanthropic activities. At the time, Mr.
Rajaratnam, a Sri Lankan native, was at the peak of his powers, a
billionaire hedge fund manager with a superior investment track record. For
Mr. Gupta, who wanted to raise his profile in the lucrative world of money
management, Mr. Rajaratnam was a topnotch connection.
Together, the two helped start a private equity firm, New Silk Route, which
made investments in India. Mr. Gupta invested at least $13 million in
Galleon hedge funds and took on a fund-raising role at the firm. He accepted
an advisory post at the investment giant Kohlberg Kravis Roberts & Company
that promised to pay him millions of dollars a year. He told a colleague
that he was raising money for a telecom fund with financial backing from AT&
T.
During a telephone conversation between Mr. Rajaratnam and Anil Kumar, a
former McKinsey executive who has pleaded guilty to insider trading, the two
gossiped about Mr. Gupta ambitions to make more money, focusing on his job
at K.K.R., a position that might have forced him to resign from Goldman’s
board because of conflicts. (He ultimately remained on both.)
“I think he wants to be in that circle,” said Mr. Rajaratnam, in August
2008. “That’s a billionaire circle, right?” Goldman is like the hundreds
of millions circle, right?”
Mr. Gupta’s friends adamantly dispute the notion that Mr. Gupta was driven
by materialism. After all, they say, Mr. Gupta had plenty of money, pointing
to testimony at the trial from his private banker at JPMorgan Chase that
pegged his family’s net worth at $130 million. In addition to his home in
Westport, a waterfront mansion once owned by the retail executive J.C.
Penney, he has vacation houses in Florida and Colorado.
“I don’t know who came up with this business that Rajat had billionaire
envy,” said Anil Sood, a childhood friend from India who now lives in
Virginia. “He has always been quite content with his wealth, and in my mind
that’s not the least bit credible.”
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