by Rajat Gupta
The charges against me were one count of conspiracy to commit securities fraud and five counts of securities fraud. These counts referred to four incidents of alleged tipping: March 12, 2007; September 23, 2008; October 23, 2008; and January 29, 2009.* The prosecution had constructed a narrative around each, connecting dots from information discussed during a board meeting I had just attended, to call logs or calendar entries showing I’d called or met with Rajaratnam, to trades made by Rajaratnam or his traders shortly thereafter, and, in some cases, to recorded conversations between Rajaratnam and his traders.
The truth was, I didn’t remember the precise content of any of the phone calls or conversations that were listed in the charges. They were just a handful among thousands, and none of them had been remarkable enough to stick in my mind four years later. The prosecutors were declaring that they showed a “pattern,” yet they were cherry-picking just a few instances that fit the pattern they wanted to show. If there were a pattern, it was a much less nefarious one: a pattern of me diligently trying, again and again, over a period of several months, to get information out of Rajaratnam about my Voyager investment, during one of the busiest times in my career.
My task, as I prepared for the trial, was to piece together the events and the context surrounding each of the alleged incidents, in order to offer an alternative—more truthful—story to the damning tale the indictment had spun. I had to take myself back to a life that already seemed so far away—a time when every day was filled from dawn to dusk with purposeful activity. A time when I was living a life of my choosing, not playing an unchosen role in someone else’s story.
Sitting on my desk, a printed stack of my calendars from 2007, 2008, and 2009 served as a painful reminder of that life that had been taken from me. Meetings, dinners, assignments, conferences, speaking engagements, board activities, fundraisers—these were not just appointments that filled my days, they were the very fabric of the life I’d worked so hard to create.
Had I been too busy? In retrospect, yes. My family had certainly thought so, and Anita had repeatedly appealed to me to cut back and learn to say no. She’d believed that after I retired from McKinsey, I would scale down my activities and spend more time at home. I did just the opposite—saying yes to more board seats, philanthropic causes, and speaking engagements. I was still following the “law” that there is no such thing as too much work or too little time. But I’d also been doing what I loved, having an impact on companies I respected and causes that mattered to me. As we prepared my defense and rehearsed my testimony, using the calendars to jog my memory, I was transported back to those days.
The Office
The story I planned to tell in court began in March 2007, shortly after I had announced my intention to retire from McKinsey by the end of the year. I was fifty-eight years old, but I wasn’t ready to hang up my suit and stay home. And one of the new ventures I was excited to have more time for was a new investment venture I’d launched the previous year: New Silk Route (NSR). The private equity world appealed to me, as it seemed a natural extension of my career as a consultant, investing in companies and helping them grow. Plus, it was an efficient way to make money, given that I already knew so many people in business and had access to capital. I saw it as a good way to earn an income while leaving much of my time free for my family and for my philanthropic activities.
The purpose of NSR was to invest in India. My partners in the venture included an old friend named Parag Saxena, former Goldman Asia chairman Mark Schwartz, and Raj Rajaratnam, with whom I was still on good terms at that point.
Rajaratnam’s relationship to NSR was somewhat ambivalent. Initially, the plan had been for NSR to have a dual strategy: part hedge fund, part private equity. Parag would run the private equity arm, while Rajaratnam ran the hedge fund. Mark would be COO, and I would be chairman of both. However, once we started raising money, it became clear that investors didn’t like the dual strategy. Raj, meanwhile, was getting a taste for the international markets and wondering if he could do better on his own. He thought the hedge fund part was more valuable and came up with the idea of creating a Galleon International brand, independent of NSR. Eventually, that’s what happened. NSR focused on private equity, and what had been the hedge fund arm became Galleon International. There was some initial discussion of a 15 percent cross-ownership between the funds, and the possibility was raised that I might serve as chairman of Galleon International. Rajaratnam never seemed committed to this path, however, and nothing came of it. Later, wiretapped calls would reveal his preference for keeping Galleon International for himself. The two funds went their separate ways. In early 2007, however, we were still figuring it all out, and Rajaratnam had generously given us an office in the Madison Avenue building that housed the Galleon hedge fund.
On Monday, March 12, I had a busy schedule, as usual. I left my home in Westport before dawn and drove into the city. After a couple of early appointments, I had a Goldman board meeting, via phone, scheduled for 11:30. My previous meeting ran late, so at 11:37 I rushed into the NSR office and dialed in.
This was the first incident referenced in a substantive count in the indictment (Count 2; Count 1 was the general “conspiracy” charge). The board meeting included a quarterly earnings report that was better than expected. Twenty-five minutes later, Rajaratnam apparently told his traders to buy 350,000 shares of Goldman stock, which jumped in value the following day when the earnings were announced, allowing him to sell at a significant profit.
What made the government believe that I was the source of Raj’s information? Principally, the fact that I called in to the Goldman board meeting from the Galleon building. It was another of those facts that looked bad, but in reality had quite a simple, non-conspiratorial explanation. That I made a call from that line was an unremarkable occurrence, given that NSR operated out of that office. On the day in question, my calendar showed that the Goldman meeting was at 11:30 and I had an NSR partner meeting at noon, so it would have been impossible for me to participate in both had I not been in one place. Did I run down the hallway after the meeting to tell Raj about Goldman’s earnings? No. But it was too easy for the prosecutor to plant that image in the public imagination.
In reality, the Goldman board meeting probably fell to the back of my mind as I hurried through an afternoon of NSR-related meetings and then headed to JFK to catch a flight to Seattle, where I was scheduled to spend several days working with the Gates Foundation.
A Busy Summer
It was about a year later that things started to fray in my relationship with Raj. By the spring of 2008, I had officially left McKinsey, although I continued to provide consulting services to the firm, introducing clients and advising partners. It was in April that year that Ravi Trehan first brought to my attention the fact that Rajaratnam had withdrawn money from the Voyager fund without informing me or giving me my pro rata distribution. This was worrying, but I wanted to be sure, so I requested paperwork. Curiously, I had not been receiving monthly statements for some time. The fund, however, was doing well, according to Raj, so I was not too worried. I was always inclined to give people the benefit of the doubt, so I hoped he would provide a good explanation. After all, why would he be lying about money and trying to avoid paying me a few million? He was worth billions. It seemed illogical, and at this point I still trusted him and took his stellar Wall Street reputation at face value.
Soon, however, I would have another reason for needing documentation related to Voyager. My bankers at JP Morgan had requested some documentation in connection with the annual renewal of my line of credit. Specifically, they needed to see things like the fund’s offering memo, partnership agreement, and the net asset value of my investment. I had none of this information, so I requested all of these from Raj in the early summer of 2008.
It was an extremely busy summer. Besides Goldman, I’d joined several other corporate boards by that point, one of which was P&G, a company I’d gotten to know when I intr
oduced them as a client to McKinsey a couple of years earlier. I had great respect for P&G’s CEO, A.G. Lafley, and enjoyed serving on their board. One of the matters we discussed at the board meeting in the summer of 2008 was the proposed sale of the coffee company Folgers to Smucker’s. This was another incident mentioned in the indictment—not as a specific count of insider trading, but as an “overt act” demonstrating a conspiracy. The prosecutors alleged that I had told Rajaratnam about this impending deal, and he’d told a colleague.
Even by the prosecution’s standards, the evidence around this claim was so close to nonexistent that I think they couldn’t justify a substantive charge. All they had was a call record showing that a call was made from an unassigned phone line at McKinsey to Rajaratnam’s assistant’s line, and a Galleon trader saying he’d heard from Raj’s brother that he’d gotten a tip from an unknown source about the deal, which was surely hearsay. But since it was mentioned in the indictment, it would come up in court and I needed to be prepared to defend it. I didn’t see that this would be too difficult: phone records clearly showed that at the exact time when the prosecutor was alleging that I had called Rajaratnam from the unassigned line at McKinsey, I was in fact on another call on my assigned private line, which lasted several minutes.
In truth, during the summer of 2008 I did not give much attention to the outcome of the Smucker’s deal, and I certainly didn’t tell Raj about it. It would not have been hard for him to get wind of the deal, however. There were several leaks in the press and much speculation by analysts in the preceding weeks. This was not surprising, given that there were dozens of people involved in the process.
As for me, I had other things on my mind. My work with the Global Fund was extremely consuming, as Ray Chambers, Jeffrey Sachs, and I were rolling out our ambitious malaria initiative. Our goal was to raise $1.8 billion from a consortium of donors to fund the rollout of bed nets and medication to hundreds of thousands of people in Africa. We had already spoken to our people on the ground and told them to plan for the biggest push against the disease that had ever happened—but we hadn’t secured the funding. I felt that we needed our partners to be ready to go before I approached the funders, but it was a risky strategy. I didn’t want to leave them high and dry if the money didn’t come through.
Closer to home, I had another consuming event: Sonu was getting married—the first of my daughters to tie the knot. Her fiancé, Meka, was Nigerian, and we were planning a full-scale cultural mash-up of a wedding at our home in Connecticut at the end of June, with several hundred guests attending.
I was also weighing up a job offer. The private equity firm KKR & Co. had invited me to take up a senior advisor role. I was leaning toward accepting; I felt ready for a new challenge, and this was something I could balance with my philanthropic work. There was just one issue: Goldman Sachs was objecting, claiming it would create a conflict of interest with my seat on the board. Personally, I didn’t see why I couldn’t have accepted this role and continued my Goldman directorship. Plenty of other directors had close ties to various private equity firms. But Blankfein was adamant. So I found myself with a difficult decision to make, one that weighed on my mind and took up a fair amount of my attention that summer.
I continued a punishing travel schedule. That month, it had included a trip to Stockholm to attend the ICC World Council Meeting and meet with Marcus Wallenberg about his proposal to put me forward for the ICC chairmanship; a trip to Geneva immediately after Sonu’s wedding, to attend a Global Humanitarian Forum meeting hosted by Kofi Annan; a day in London; and a Goldman Sachs board meeting in St Petersburg, Russia. Goldman held one board meeting a year offsite, and it was customary for spouses to be invited along, so Anita accompanied me on the trip.
July 4 weekend I stayed home, catching up on various matters. On Monday, when my assistant returned to the office, she noticed that Rajaratnam had finally sent the audited 2007 financial statements for Voyager. These didn’t help with JP Morgan, but at least they might shed light on the redemptions. Knowing I was trying to take a few days off, she forwarded them directly to Greg Orman, my financial advisor, a former McKinsey analyst who’d become a trusted friend and had taken it upon himself to help me better manage my affairs and learn to say no to poor investments in my friends’ businesses. There, in the fine print, was evidence of the $23 million withdrawal Ravi had noticed, plus over $25 million in commissions. When Greg showed me this, my heart sank. I hadn’t wanted to believe it, but here it was in black and white. Not only had Rajaratnam made redemptions without telling me or giving me my share and taken commissions that had not been agreed upon, he had also substantially multiplied the leverage risk of the fund by depleting the equity.
“We should talk to a lawyer,” Greg said, and I reluctantly agreed. I hated to escalate this kind of situation, but it seemed necessary. My travel schedule picked up again, however, leaving me little time to even digest the information I’d received, let alone take action. To be honest, I think I was happy to have an excuse to at least postpone, if not avoid, the confrontation. If you have ten problems, ignore them—nine will go away. That had always been my policy and for the most part it had worked well. But Rajaratnam would prove to be number ten, and I would pay dearly for my procrastination in dealing with him.
In the weeks that followed, I attended meetings in Boston, Chicago, San Antonio, Dallas, Bucharest, and New York before taking Anita and Kushy to London for a brief vacation. During this time, my bankers at JP Morgan continued to request the Voyager documents, emailing and calling my assistant daily. She emailed a colleague of Ravi’s who I’d suggested might be able to help, as well as my accountant. None of these avenues proved fruitful, so I told her that I’d raise the matter personally with Rajaratnam when I arrived back in New York on July 28. We were scheduled to meet about NSR, so I knew I’d have an opportunity. I still needed to confront him about the redemptions as well.
After the meeting ended, I pulled Raj aside and reminded him about the documents, but he was evasive. “Let’s talk tomorrow,” he said, “I have to run. But I want to talk to you about Goldman as well.” He was meeting with Goldman president Gary Cohn later that week, he said, and he wanted me to brief him about some relevant matters and give him some talking points.
An Ill-Judged Conversation
The next day, Tuesday, July 29, I had a rare day at home in Westport. I was glad to have a moment to catch my breath before leaving the next day for another trip, this time to Washington, DC, with Ray Chambers, for the signing of President Bush’s historic PEPFAR bill for AIDS relief, at which the president was to honor me for my work with the Global Fund. Of course, my calendar was still busy, with a breakfast with a local congressman, a doctor’s appointment, a contractor coming to fix numerous issues at the house, and several calls. One of these was to Rajaratnam.
That call was the only conversation between us that was recorded during the government’s exhaustive wiretapping of Rajaratnam’s phones. It was the call that was played at Rajaratnam’s trial, the call that cost me my relationship with McKinsey.
One detail about that call that no one paid attention to was the short discussion that followed our conversation about Goldman’s possible purchase of a commercial bank. It related to the Voyager fund and the statements I’d been requesting. Raj promised he’d get someone in his office to send me the balances, noting that the fund was “slightly down” as of the end of June. That didn’t concern me too much. At this point I just wanted to get my bank the documents they needed. I put off challenging Raj about the redemptions; it didn’t seem like the right moment. Our conversation continued, turning to Anil and the now-infamous million-dollar payment.
Finally, before we hung up, I asked him again what he thought about the KKR position. He had told me he knew the principals well and had even claimed they’d tried to buy Galleon (a claim I would later learn was untrue). I was eager to hear his thoughts on the wisdom of taking the job, since I still hadn’t made a final
decision. “I’d do it in a heartbeat,” he replied. When I listened back to the tape, years later, that comment jumped out at me. Raj knew that taking the KKR job would mean resigning from Goldman, yet he encouraged me to do it—a fact that did not fit well with the prosecutor’s claims that I was his source at Goldman. Surely, if that had been the case, he’d have been encouraging me to keep my board seat, with its access to valuable secrets?
Raj’s guy never did get me those Voyager documents. I was starting to get irritated—by this, and even more so by the unexplained redemptions. It felt like he was stalling, and I couldn’t understand why.
In August, we had the final closing of the NSR fund after a very successful fundraising campaign. By this point, the hedge fund arm had become Galleon International and NSR was independent of Galleon, although Rajaratnam remained a passive investor. Our offices had moved out of the Galleon building. The talk of cross-ownership never came to anything, and nor did my proposed chairmanship.
I disappeared into another series of international trips, this time including an international AIDS conference in Mexico City; a WEF board meeting in Geneva; and a brief trip to India for an ISB board meeting, a Genpact leadership strategy workshop, and various other meetings and speaking engagements. A highlight of this marathon was a board meeting at Tsinghua University School of Economics and Management, China, which happily coincided with the Beijing Olympics. Anita and I enjoyed the chance to cheer on the athletes from both our home country and our adopted one.