Rajat Gupta’s case is the tale of a prosperous environment gone terribly wrong and a stark wake up call to correct it, if indeed we are to make an attempt to revive the faltering world economy at all
When the ball finally dropped on Rajat Gupta, it would seem it wasn’t as severe as anticipated at all. Two years imprisonment, a $5 million fine for charges of being compliant to insider trading.
The case was deemed the big scalp for the US Federal Reserve in its crusade against insider trading. Mr Gupta was a powerful man, with far-reaching influence. He had served as McKinsey and Company's managing director (worldwide) until his retirement in 2007, been on the board of many of today’s influential corporations and banks, including most prominently, Goldman Sachs. He founded one of India’s premier business schools, the Indian School of Business, was influential in the formation and fundraising support for the Public Health Foundation of India and one of the preeminent funds investing in the emerging markets of South/SE Asia, New Silk Route.
For the most part, Mr Gupta has lived the Indian American dream. Rising from India’s top engineering school, Mr Gupta headed to the Harvard Business School, where he graduated as a baker scholar. Ironically, Mr Gupta was initially turned down by McKinsey as an associate, during recruiting at Harvard. McKinsey overturned this decision upon assurances from then HBS dean, of Mr Gupta's immense promise and reputation as one of the best students Harvard had seen.
Mr Gupta’s tale is one of a fall from grace and lessons for Wall Street to heed. While his initial punishment (prior to appeal) is nowhere as severe as the potential 25-year prison term he could have faced, Mr Gupta is a man whose legacy lies in tatters. It will be a long time before the “egregious breach of trust”, as the judge ruling on his case put it, begins to heal.
Mr Gupta’s charges were of leaking information, from his position on the board of Goldman Sachs, to hedge fund investor Raj Rajaratnam (currently serving an 11-year prison sentence) about internal transactions at Goldman, including Warren Buffet’s $5 billion bailout at the height of the crisis. This prompted Mr Rajaratnam, to hedge himself against the fluctuations in stock price. Mr Gupta wasn’t believed to have had any realistic financial gain and his attorneys say the two friends were discussing the deal in their position as investors themselves. But, of course, the timing of it and the fact that the reveal took place before the public announcement tells a more sinister story.
Mr Gupta has been defended by and asked to be pardoned by many public luminaries—former UN secretary general Kofi Annan, philanthropist Bill Gates among others—asking for a softer sentence in light of all of the public service he has done. And it is undeniable that Mr Gupta has been involved in a number of social-minded initiatives that have positively impacted and will continue to impact the lives of many.
While his good work is undeniable, his case is an example to Wall Street of the consequences of power gone horribly wrong. It is a tale of public service not being an excuse for white collar crimes, of boardroom influences not reaching far enough (to save you in the ultimate). Some will call it persecution, some will call it profiling because of race, but it is above all an example, of the sentiment worldwide about Wall Street—the protests, the disillusions, the many accusations of corruption and desire for quick fast money driven by simple greed. It is the tale of a prosperous environment gone terribly wrong and a stark wake up call to correct it, if indeed we are to make an attempt to revive the faltering world economy at all.
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(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. Sushruthi Ramesh is a graduate of economics and an independent researcher working on Governance, Ethics, Investment Banking and Private Equity.)