by Rajat Gupta
Another small piece came into view toward the end of January, when Rajaratnam’s co-defendant Danielle Chiesi, a teen beauty-queen-turned-analyst who extracted tips from her married lover and passed them on to her hedge fund boss, pleaded guilty. In the wake of her plea, yet another superseding indictment was filed, and this time, hidden in a sub-paragraph describing “overt acts” of one of several alleged conspiracies, was a reference to Rajaratnam passing a tip about Goldman to an associate. My lawyers seemed encouraged by this, explaining that it confirmed that the government didn’t have enough evidence to add a charge for the Goldman trades. If this was all they had on Raj, then surely whatever they thought they had on me was even more insubstantial.
The end of January brought what should have been a highlight of my year: the annual World Economic Forum (WEF) conference in Davos, Switzerland. I’d become a friend and advisor to WEF founder Klaus Schwab during my McKinsey days, and had joined their board. The Davos gathering was always a welcome opportunity to reconnect with old friends, but this time I could see the unasked questions in too many eyes, and it was hard not to imagine that people were talking about me and speculating about the case. It was a relief when those who knew me better just came out and asked me about it. One of these friends was Mukesh Ambani, the prominent Indian businessman, who sat down with me for more than an hour, ignoring the constant demands for his attention, and asked how I was doing and how he could help. I was touched by his concern, and likewise by that of my friend Sunil Mittal, a very successful Indian business leader who traveled home with me and spent the whole trip expressing his support.
On January 28, we received what’s known as a Wells Notice—a letter from the SEC informing me of their intent to charge me with violations of securities law. This was far from welcome, but at least it afforded us, for the first time, some information about the specifics of my supposed crimes and the “evidence,” such as it was. I’m not a lawyer, but even I could see that they didn’t have much to go on. In fact, there was little here that we hadn’t already heard about.
In addition to the allegation that I’d tipped Rajaratnam about the Berkshire Hathaway deal on September 23, 2008, there were three other incidents mentioned. First, they alleged that in June 2008 I had disclosed Goldman’s better-than-expected second-quarter financial results, allowing Rajaratnam to buy stock before the shares went up and sell at a profit. Second, they alleged that I had disclosed Goldman’s financial results for the fourth quarter of 2008, which reported a loss, allowing Rajaratnam to sell Galleon’s holdings and avoid losses. And third, they alleged that I disclosed P&G’s financial results for the last quarter of 2008. All they had, as far as evidence went, were call records showing I’d called Rajaratnam following Goldman and P&G board meetings, and the two wiretaps we already knew about, in which Rajaratnam mentioned—but did not name—a source at Goldman.
We had thirty days to prepare a response to the Wells Notice and provide satisfactory reasons why the SEC should not charge me. “Don’t worry,” Gary said, an admonishment that was falling flatter every day. We began preparing a lengthy document telling my side of the story. Why couldn’t I have just done this at my testimony in December? I wondered, yet again. It would have saved us all this trouble. The lawyers insisted this was different—now we had the evidence in front of us and could tailor our statement accordingly. But I knew my story would not have been any different two months earlier: the truth was the truth and all this legal maneuvering was frustrating.
I put the final touches on our response on Friday, February 25, 2011, working via telephone from a hotel room in Japan, where I had business meetings that day. My lawyers delivered it to the SEC that night, and the next morning I flew to India. After a meeting with Kamal Nath, minister of urban development, about an urbanization initiative we were working on, I would travel south to Bengaluru, where Anita and I would spend a couple of days with our friend and ISB board member Kiran Mazumdar-Shaw, and then we would travel to Delhi to celebrate my sister’s sixtieth birthday.
Charged
“It’s not looking good,” Gary told me by phone on Sunday. Rumors were growing that a charge was coming. Anita and I were at an India–England cricket game, but everything seemed surreal to me. Could this really be happening? Was I actually going to be charged with a violation? What had once seemed unthinkable suddenly seemed imminent, and there was nothing I could do to prevent it. Had all the lawyers’ admonitions not to worry been foolish, their optimism dramatically misguided? Adding to the strangeness of that day was the outcome of the match: a tie, almost unheard of in the sport of cricket.
The next day, our fears were confirmed. I received word that the SEC had authorized a suit against me and charges would be filed within days. I was shocked by the speed at which this happened. We’d only submitted the document on Friday night! Surely they had not even had time to review my response, much less consider it. Had they been reading it all weekend? It seemed unlikely, and there was no record of any meeting of the five SEC commissioners on those dates. The moment the mandatory thirty-day period was up, they pounced. Had the Wells Notice just been a meaningless exercise? Were the charges always a foregone conclusion?
Arriving in Delhi, we headed straight for my brother-in-law Avinash’s house. He and his wife, Madhuri, were with us throughout those difficult days—the first of many times they would be by our sides as we reeled from bad news. The charges weren’t public yet, but it was just a matter of time. All I could do was damage control. A lot of people needed to hear this from me rather than from the press.
The first person I called, with a heavy heart, was Dominic Barton, the current managing director** of McKinsey. At that point, I was still working with the firm as a consultant, and I maintained an office and a secretary at the Stamford office, a privilege that was offered to all former managing directors for life. The firm’s good opinion of me meant almost more than anyone’s—it had nurtured me and I had been honored to represent it on the world stage. I hated to think that any of my partners might believe the allegations for even a moment, but I didn’t want McKinsey to get caught up in this. After explaining the situation to Barton, I offered my resignation.
I’d been acquainted with Barton since he joined the firm, and we’d known each other quite well since he became partner. He was a charismatic, client-oriented guy and very popular. As I had hoped, he was immediately supportive, insisting that I just take a paid leave of absence until it all blew over. I thanked him, and assured him once again that I’d do everything within my power to resolve this matter quickly and with minimal damage.
By the time the SEC charges were officially filed, on March 1, 2011, I had resigned from all my corporate board seats. I had also written an email to all my friends and colleagues telling them that I would fight the charges and assuring them that the evidence was merely circumstantial and wouldn’t stand up in court.
When the media learned of the charges, it sent shock waves through the corporate world. Walking through a hotel lobby in Delhi the next day, I was so busy trying not to be noticed that I almost missed a familiar face. “Rajat!” I looked up to see my old friend Marcus Wallenberg, grandson of the legendary Swedish industrialist Marcus Wallenberg, Sr., who had invited me to chair the ICC board. Accompanying him was Josef Ackermann, CEO of Deutsche Bank and a fellow WEF board member. They were in town for a conference. It was such a surprise and relief to see some friendly faces, and they promptly sat me down and tried to cheer me up for the next hour.
The respite was brief, however. It didn’t matter that I’d not been found guilty—the damage to my reputation was now irreparable. And it was not just me—all the institutions I’d built and stewarded would now be forced into the spotlight for negative reasons. Some of these I’d founded and raised like my children—the Indian School of Business, the Public Health Foundation of India (PHFI), the American India Foundation. Others were globally significant philanthropic giants in which I’d played a key role—the Global
Fund to Fight Aids, Tuberculosis and Malaria (GFATM), the Gates Foundation, the United Nations, ICC, the Rockefeller Foundation, and many more. I’d poured my time, energy, and creativity into each, and now I was faced with the painful reality that to protect them I must resign. I tendered my resignation from every nonprofit board seat in the spring of 2011. It was one of the hardest weeks of my life.
Many of these institutions protested my resignation, but there was one that flat out refused to accept it: the Gates Foundation. Bill Gates and I had become acquainted in the 1990s, after we met at one of his CEO conferences. I’d begun advising the foundation soon after its inception. “You’re innocent until proven guilty,” Bill told me, in a message via his executive director, Sylvia Mathews Burwell. “Don’t resign.” I appreciated his solidarity when so many people seemed to be assuming the worst. Sylvia added her own words of support—she and I had known each other for many years, first at McKinsey and later at the foundation. Soon afterwards, however, Gates took a trip to India, and was mobbed by reporters asking him why I was still on his board. I couldn’t sit by and watch while my troubles detracted from the important mission of the foundation, so I insisted that he accept my resignation, which he reluctantly did.
There was one resignation I decided to tender in person: my chairmanship of the ICC board. A meeting was scheduled in Paris the coming week, so I flew there directly after returning from India. It was a sad event, made more poignant by the lengths to which my colleagues went to give the proceedings some dignity. Marcus Wallenberg even flew in for the occasion. I’d deeply valued the opportunity to serve such a unique global institution and was sorry to be leaving before my term was up.
The meeting was held in the ICC offices, overlooking the Eiffel Tower. As I took in the spectacular view, I thought back to how the organization had ended up in this space. When I’d taken over as chairman, I soon realized that the ICC was on a precarious financial footing. What it did have was a prime piece of real estate, on the banks of the Seine, that was unsuited to its needs. It occurred to me that if the organization could find another home and sell the building, it would solve several problems at once. I asked my colleagues, is the French government doing anything to support us? The response was no. “All they do is tax us.” This didn’t seem right to me, given the organization’s prestige. Perhaps we should move somewhere else. I went to Geneva and told local officials that ICC was considering a relocation and they offered us an impressive package of incentives. Returning to France, Marcus Wallenberg and I requested a meeting with the finance minister, Christine Lagarde. “This is the oldest global business organization in the world, and its home is Paris, but we can’t afford to stay.” We asked her if she might consider giving ICC one of the many vacant government buildings, allowing us to achieve financial stability. She did just that, which was why I was now looking out over the iconic Parisian landmark as I reluctantly prepared to resign from the board.
I hated to walk away with my work only half done. But I felt I had no choice. Back in New York, Raj Rajaratnam’s trial was beginning. My shadowy opponent was lining up the pieces on the chessboard, but I had no idea what the next move would be.
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*For those not familiar with the US system, the SEC is the civil agency charged with regulating the securities industry and enforcing federal securities laws. SEC violations are punishable by fines but not imprisonment. The Justice Department prosecutes criminal cases.
**Sometimes referred to as “managing partner,” this was equivalent to the CEO role.
4
Elephant
The real with its meaning read wrong and
emphasis misplaced is the unreal.
—Rabindranath Tagore, Stray Birds, 254
April 24, 2011, New York City
“Throughout Raj Rajaratnam’s trial … there has been an elephant in the courtroom: Rajat K. Gupta.”
I was reading the papers over breakfast in our New York apartment on a chilly spring morning, as I had done every day during Rajaratnam’s trial, which had begun six weeks earlier. On this particular morning, the New York Times was on top of the pile, and my name was in the headline. The article continued, “Mr. Gupta, once one of the world’s most respected businessmen, is not being tried here nor has he been charged criminally. Yet hardly a day has passed when the jury in Mr. Rajaratnam’s trial—the government’s biggest insider trading case in a generation—has not heard about Mr. Gupta …”1
“At least I’m not imagining it!” I said to Anita. The Times had just perfectly described the feeling I’d had for the past few weeks. I’d not set foot in the courtroom during the Rajaratnam trial, but I’d felt as if I were the one in the defendant’s seat. It was as if I were being tried in abstentia for a crime I’d not even been charged with, unable to defend myself as my name echoed through the courtroom again and again. The amount of time dedicated to me at his trial seemed disproportionate, to say the least—a fact that only confirmed my growing sense that I was being set up.
The wiretap conversations were played daily. The jury heard Raj talking with his sources—the colorful Danielle Chiesi, the dour Roomy Khan, and of course the smooth-talking Kumar. They heard Raj relaying information and instructions to his traders, whose attitudes and vocabulary only served to reinforce the worst stereotypes of Wall Street stocksters. They heard him boasting to his lieutenants about tips he’d received, including the two that related to Goldman. And they heard my name. Repeatedly.
The prosecution kept bringing up Goldman, and trotting out the allegations against me, despite the fact that there was no substantive charge related to the bank and I was named nowhere in the indictment against Rajaratnam. I was referred to in the courtroom as an “unindicted co-conspirator.” Strangely, underscoring both my centrality and my absence, I heard that a large sketch of me hung in the courtroom—the only one of its kind.
By far the worst moment in this particular episode of the drama had come on the morning of March 15. My lawyers called to tell me they had received word that the tape of the one conversation between Rajaratnam and myself that was caught on the wiretaps was going to be played in the courtroom that day. I could not fathom why—the conversation did not contain any tips and was not connected to any trades. I’d been assured it contained nothing incriminating, which was true. Yet it turned out to be devastating to my already battered reputation.
The recorded telephone call was made on July 29, 2008. 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. In fact, he had called me, eager to talk because he was getting ready to meet with Goldman president Gary Cohn and wanted to be prepared. He asked me casually about a rumor he’d heard that Goldman was considering buying a commercial bank, such as AIG or Wachovia. I confirmed the rumor—which was public knowledge—but made the terrible mistake of saying that there had been a discussion about it at the recent board meeting. I cringed to think about this being played in the courtroom. The information itself was hardly private—the press had been discussing the possible acquisition for weeks at that point—but I should never have mentioned the board meeting. Raj was always gathering information, throwing out things he’d learned from analysts or research firms and looking for confirmation. In this instance, I should have been more careful. I hoped people wouldn’t infer from this slip that I made a habit of such disclosures, which I did not.
I certainly did not intend to provide Rajaratnam with any inside information. Far from it. This was 2008, just a few months after the collapse of Bear Stearns and not long before Lehman. During those tumultuous months, Rajaratnam often grilled me on Goldman’s stability, sometimes threatening to take his business elsewhere. In that particular call, I was trying to reassure him—a significant Goldman client—that the bank was not about to fold. I explained that Goldman’s interest in a possible acquisition had nothing to do with being in a crisis
or a lack of funds. They were opportunistic, I said, so if they saw a good deal, they’d likely go for it. 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. Would anyone in the courtroom realize this though, when I was given no opportunity to explain myself?
As it turned out, this indiscretion was far from the most damning part of the call. There was another part to the recorded conversation, of which I’d been unaware until it was played that day in the courtroom. I listened, aghast, as I heard it played back to me later that day at my lawyers’ offices.
As the discussion with Rajaratnam was winding down, I mentioned our mutual friend and colleague Anil Kumar. He had seemed rather unsettled to me in recent weeks, I observed. I’m sure I immediately regretted bringing him up, as Raj launched into a lengthy complaint about Anil, as he often did. Indeed, it seemed like all those two guys did was complain about each other—Anil frustrated that Raj wouldn’t commit to hiring him, and Raj irritated that Anil was always on the make and angling for a job. I could never keep up with the ins and outs of it all, a situation that was exacerbated by Raj’s tendency to exaggerate everything and Anil’s inflated sense of his own importance. It had gotten to the point where I just tuned it out, not wanting to be constantly in the middle of their bickering. I think that was probably what happened on that particular call, which is why it didn’t raise a red flag for me when Raj uttered the statement, “I’m giving him a million dollars a year for doing literally nothing.”