Mind Without Fear

by Rajat Gupta

  It was during that trip to China that the KKR issue came to a head. Blankfein, who was also on the business school’s board, was adamant that I could not do both. Finally, during a board dinner with our spouses, he leaned across Anita, who was sitting between us, and told me loudly, “It’s one or the other: Goldman or KKR. You have to choose.”

  At some point between these trips, Renee informed me that we’d received a letter from Rajaratnam, dated August 4, stating my balance in Voyager as of the end of 2007, and describing the fund as “relatively unchanged before any expenses.” She forwarded this to the bankers at JP Morgan, but it was not enough to satisfy their requirements. They continued to press Renee for documents, including information about the fund’s investment strategy, liquidity, and redemption provisions. Soon afterwards, Rajaratnam had his guy George Lau write up another letter, which still did not contain the necessary information. I met with him in person a couple of days later, reiterating our requests more forcefully, but he continued to stall. (Interestingly, in a wiretapped conversation between Rajaratnam and Anil Kumar the following day, which we’d found among the evidence, they both commented that I seemed upset at the meeting—hardly surprising, given my suspicions about Rajaratnam and his frustrating evasiveness. They also gossiped rather nastily about my financial ambitions and my overstretched schedule—it was not a conversation that would support the idea that we were “co-conspirators.”) Later that same day, I had lunch with Rajaratnam (he described it to Kumar as “a nice long chat”). I don’t remember the details, but perhaps he reassured me that he’d take care of my requests. I continued my travels, arriving home just in time to accompany Kushy on a visit to Brown University in Providence, Rhode Island.

  The Road Not Taken

  After much thought, on long flights, I had come to a decision on KKR: I would accept the position. Since Blankfein was resolute in his ultimatum, I told him I would be resigning from the Goldman board. At the board meeting on Tuesday, September 9, 2008, he made a somewhat awkward speech thanking me for my service. The board members clapped politely as I opened the box he’d presented to me and held up a pair of gold cufflinks, which reflected the lights from the chandelier overhead. My time as a Goldman director was over—or so I thought.

  The next day, I flew to London for a series of meetings, and then on to Paris for an ICC board meeting, where I received an urgent message to call John Bryan. Lehman Brothers, he told me, was on the brink of bankruptcy. Everyone in the industry was panicking, wondering how they would be affected and who would be next. My board resignation had not yet been publicly announced. Now, as every bank scrambled to maintain an appearance of stability, Bryan appealed to my sense of service to Goldman and my long-standing relationship with him.

  “Don’t resign just yet,” he requested. “It will look bad for the bank. We need to maintain a united front.”

  I felt torn. Clearly Blankfein did not want me on the board; he’d made that more than clear. Anita was outraged when she heard about the request.

  “Don’t you dare!” she exclaimed. “You don’t owe them anything! Why should you do this for them now, when they treated you so unfairly and weren’t willing to accommodate your career choices?”

  I appreciated her perspective, and I knew she’d never liked Blankfein, but I did feel a sense of duty to the bank. Perhaps it was because of my relationship with Hank and John Bryan—I felt I owed them my loyalty in this precarious moment. I didn’t really feel I owed Blankfein anything, but perhaps, I thought, acceding to this request would improve our relationship. So I withdrew my resignation, though I didn’t dare tell my wife right away. Standing by Goldman in their hour of need seemed like the right thing to do. I never imagined that they would not do the same when my hour came. And I had no premonition, on that day, that I would pay such a high price for my loyalty. Had fate not intervened in the form of the Lehman collapse, I would have walked away from Goldman with my cufflinks in my pocket and my entire life would have looked different. That road not taken would haunt me for years to come.

  The Lehman bankruptcy hit the headlines on September 15, 2008, sending the global economy into a tailspin. It also had personal implications. Lehman was the prime broker for the Voyager fund. Unfortunately, I had no time to call Raj and try to find out what this meant, nor to chase up the information that JP Morgan were still requesting. I met with my banker that afternoon, and she insisted that we could not move forward without the Voyager papers. I encouraged her to contact Raj’s team directly, and assured her that I would increase my efforts as well. First, however, I had to fly to Dallas for a two-day board meeting with AMR Corporation (the parent company of American Airlines) and then make a thirty-six-hour trip to Frankfurt, Germany, for a Genpact meeting. I was growing increasingly anxious about Voyager and concerned by Rajaratnam’s elusiveness. What was he hiding? Why were his associates so cagey in response to my bankers’ requests? Why wouldn’t he provide the information we needed? It had been more than two months now since we first requested documents that should have been easily provided. Several emails the next day still elicited little response.

  Saturday, September 20, was Sonu’s thirtieth birthday, and Anita’s birthday was the next day. The entire family came home for the weekend for a double celebration, along with many of Sonu’s friends. It should have been a happy time, but the pall of the financial crisis hung heavy, as did my concerns. At dinner on Friday night, talk quickly turned to the recent Lehman bankruptcy. One of Sonu’s friends had worked for Lehman and was now out of a job. They all wanted reassurance that things were going to get better, and I did my best to explain that all markets have their ups and downs.

  The other issue weighing on my mind that weekend was our malaria initiative. I’d finally begun fundraising, but so far only the Global Fund’s $1.2 billion was confirmed. We still needed $600 million, and we had only a few days until the launch. It would be up to me to find a way to close the gap, and there couldn’t have been a more difficult time to be asking people for money.

  Thanks to her job in the financial industry, Sonu knew better than her sisters what was going on in the markets and the possible implications. She also knew me too well to be fooled by my attempts at a positive outlook. After breakfast the next morning, she motioned to me to come into the library, where we could talk without burdening her mother.

  “What’s happening, Baba? It’s not like you to be so upset, even when things are difficult. Is there something more going on?”

  I told her about Voyager. “I’m worried that Raj isn’t being straight with me. He took out that money without giving me my share, and I’ve been trying to get some basic information for months, and he’s just giving me the runaround. He keeps saying the fund is doing okay, but now, with this Lehman thing, I’m really worried. Lehman was our prime broker.”

  We discussed the matter for a few more minutes, and I resolved to renew my efforts to get information out of Raj on Monday. “Now, let’s try to put it aside,” I told Sonu. “It’s your birthday, and I don’t want Anita to be worried. Let’s celebrate.”

  The Buffett Investment

  On Monday morning, September 22, I asked Renee to call Caryn, Raj’s assistant, first thing. She explained, once again, which documents we were looking for and asked Caryn to pursue the matter directly with Raj. At the same time, my bankers and my accountant were emailing various people at Galleon. I had to attend a Goldman Sachs Foundation lunch in the city, followed by a dentist appointment, but, as soon as I got out, I asked Renee to try calling Raj directly. She left messages at his office and on his cell, one of which would be intercepted by the government’s wiretap. Raj did not return my calls, but I couldn’t spend more time on it that day—I needed to secure the funding for the malaria project. We were launching in just two days, at the annual Clinton Global Initiative conference. I called my friend Bob Zoellick, who was president of the World Bank and was still on the fence about joining our consortium of funders. “I know you support
a lot of projects,” I told him, “but this one is different. It’s a once-in-a-lifetime opportunity to make a massive difference.” Just twenty-four hours before the launch, Zoellick came through with a commitment of several hundred million. The Gates Foundation also donated generously.

  September 23 was tightly scheduled, even by my standards. Studying my calendar as I sipped my morning coffee, I felt intense frustration that I still needed to pursue the Voyager matter, on a day when my first call started at 8 a.m. and my last meeting finished at 10 p.m. I was still finalizing the malaria funding and preparing for our big launch the next day. There were no gaps in the calendar whatsoever, other than my drive to the city and a fifteen-minute break between a meeting that finished at 3:15 and a call starting at 3:30. Perhaps then I can go to the bathroom, I thought to myself. Then I received a message from my secretary that Goldman was calling an emergency board session for that afternoon. It would begin at 3:15.

  It was not unusual for board meetings to be scheduled at short notice during those volatile weeks, with the entire financial industry on edge. A few days earlier, on the heels of the Lehman bankruptcy, the Federal Reserve had bailed out AIG (which effectively amounted to a Goldman bailout, since Goldman was one of AIG’s biggest creditors). Paulson and Bernanke were proposing more bailouts, and everyone was wondering which banking giant would be next to fall. The Goldman board had been meeting every few days as we tried to help steer the bank through the crisis. I asked my secretary to cancel my 3:30 meeting with the president of Muhammad Yunus’s nonprofit, Grameen America. I’d been looking forward to learning more about Professor Yunus’s agenda, but it would have to wait; Goldman took priority.

  I hurried through my morning appointments in Connecticut and then resumed my efforts to call Raj during my drive to the city. Call records show that I spoke to him that morning, and I most likely asked him, once again, to please send the documents. He promised he would get them to me by end of day. Arriving in the city, I went straight into a series of appointments, including a meeting with a young entrepreneur and IIT alumnus, Sandeep Tyagi, who was seeking an investment, and a discussion about a proposed business school following the ISB model, which I unfortunately had to cut short to make the Goldman call. I dialed in to the board meeting at 3:15, ready to deal with whatever new crisis the bank was facing that day.

  On this particular day, however, the news was surprisingly positive: the legendary Warren Buffett had agreed to make an investment of $5 billion. It was a game-changing move by the Berkshire Hathaway chairman, one that amounted to a massive vote of confidence in Goldman while other financial institutions were flailing. As a board member, I was made privy to the inner workings of this hastily made deal, which had been set in motion just the previous day by the Goldman banker Byron Trott, a trusted confidant of Buffett’s. There was no doubt that Buffett was getting extremely favorable terms, but in that climate it was still a blessing. The board unanimously approved the deal, and I hung up the phone at 3:54, with a full six minutes before my next meeting. So of course, I called Renee.

  “Did Raj send the Voyager documents?”

  “No,” she said. “And Jeffrey from JP Morgan just emailed me yet again asking what’s happening.” Aaron, my accountant, had also been copied on the email and had said he’d follow up right away. But we’d been down that road several times before, so I didn’t hold out much hope he’d be successful. I looked at my watch. I still had five minutes before my next meeting. I told Renee, “Get me Raj.”

  This event was the subject of Counts 3 and 4 in the charges. The prosecutor’s story was that on that call, I told Rajaratnam about the deal, still secret, and he immediately ran out on to the trading floor, shouting, “Buy Goldman Sachs!” The only evidence supporting this story, besides the testimony of Galleon traders that they’d gotten the instruction, was the speed with which I called Rajaratnam and a vague remark that he made to a colleague the next day, caught on a wiretap: “I heard that something good might happen to Goldman.”

  In reality, I don’t know if I even spoke to Raj. According to the logs, the call lasted less than a minute, which leads me to think that, at most, he just got on the line and told Renee or me, “I’m working on it, I’ll get them to you soon.” There was simply no time for his secretary to go find him and for us to have a conversation of any significance. It’s quite possible I didn’t even speak to him at all—his secretary may have come back and told Renee he was unavailable. She had no particular memory of the incident, which is hardly surprising, since this was just one of dozens of unsuccessful attempts she’d made to call Raj on my behalf during those months. Call logs show a couple of other attempts to call his cell phone immediately afterwards, lasting just seconds—all of which confirms my conclusion that this was just another failed attempt to reach him. They also showed that my next call was to Ravi Trehan, lasting a couple of minutes, during which I probably expressed my frustration at still not being able to get the Voyager documents from Rajaratnam. It’s worth noting that Ravi also ran an investment firm, Broad Street Capital, yet he made no Goldman trades that day—another fact that called into question the notion that I was hurrying to tip my friends about the Buffett investment.

  The government’s story seemed to deliberately gloss over the specifics of the series of calls, instead focusing on the sixteen-second gap and spinning a story about my haste to get to Raj before the markets closed. The indictment also seemed to overlook the critical fact that many of these calls in which I was allegedly passing tips were calls placed by Renee, who often listened in to note important follow-up tasks or appointments. This would hardly make sense if I were engaged in illegal activity. Lastly, it omitted to consider that Goldman’s stock price had started going up at 1 p.m. that day—the moment the special board meeting was scheduled—indicating that word had already gotten out that “something good” was going to be announced.

  Frustrated, I moved on to my next few appointments. Ina Moroz, a McKinsey associate from Paris, was waiting outside the office for my next meeting. I hadn’t even closed the door, she remembered later, although she didn’t hear the content of my call with Raj. Next was a meeting with the World Bank’s head of malaria and Ray Chambers in preparation for the malaria project’s launch, followed by a meeting with a Nigerian advisor for the Millennium Development Goals, and a dinner honoring Ethiopian Health Minister Tedros Adhanom Ghebreyesus, a key partner in our malaria efforts. Thoughts of Buffett’s billions and Rajaratnam’s evasiveness were soon far from my mind as the conversation turned to a project that could save hundreds of thousands if not millions of lives.

  By 6:00 p.m., the Berkshire Hathaway investment in Goldman Sachs had become public, grabbing headlines in every major news outlet. Blankfein was quoted claiming that the deal was “a strong validation of our client franchise and future prospects.”2 The press seemed to agree, with the New York Times reporter Richard Beales observing that “the sight of one of the world’s canniest investors taking out his checkbook has given a lift to other financial stocks.” The bank, he concluded, had “snatched from the jaws of defeat something that can be passed off as victory.”3

  In a car between appointments, I checked in with Renee: still no statements. Irritated, I made one more attempt to contact Rajaratnam. It was 6:15 p.m., and he’d already left his office, so I called his cell phone directly, but got only his voicemail. I left a message, which would later become part of the evidence at my trial. In the prosecutor’s tale, the friendly tone of my message was further proof of the conspiracy he was trying to conjure up. What he seemed to be overlooking was that in my message I said to Raj that I was “calling to catch up”—a strange thing to say if I had, as they were alleging, spoken to him only hours earlier.

  I stayed in the city that night, as the next day I was attending the Clinton Global Initiative conference and launching the malaria project with Ray Chambers and Bill Gates. I was also scheduled to speak at an AIF summit at New York University, lead a workshop and c
hair a panel at the ICC World Business and Development Awards, as well as take half a dozen phone meetings. Looking back at my calendar, I can’t imagine how I did it all. Meanwhile, the emails between my assistant, my accountant, my bankers, and Raj’s people continued. I spent three more appointment-packed days in New York before heading home to pack for a much-needed vacation with Anita in Colorado.

  Upon our return, I barely had time to unpack and repack before I was on a flight to San Francisco for an AIF gala, followed by a trip to Geneva for a Global Fund board retreat. I arrived home on Thursday, October 9, just in time for an HBS advisory board meeting in Boston, followed by a P&G board meeting in Cincinnati.

  On October 16, I had one day at home, and among the many pressing things I needed to catch up on was a meeting with Greg Orman, my financial advisor. It was around this time, possibly in that meeting, that I finally learned the truth about Voyager.

  It was worse than I’d feared. Left more vulnerable by Raj’s large withdrawal, the highly leveraged fund had gone to zero following the Lehman collapse. My equity was lost—all $10 million. Raj hadn’t lost a penny, having taken out his initial investment and more before the crash. Later, when we gained access to the wiretaps, they would shed light on what was going on behind the scenes. Rajaratnam was caught on tape several times during September discussing Lehman’s desire to terminate the Voyager facility, the search for a new broker, the pressure on the fund following the Lehman bankruptcy, and the possibility that the fund would be shut down before the end of the year. In an October 2 conversation, which we’d stumbled upon while combing through the wiretaps, he flat out admits to one of his employees that he’d lied to me about the fund’s success and never told me about the redemptions. “It’s part of the game,” he says, dismissively. “Look, when you take leverage—you know…. I hope Rajat is a big boy…. I didn’t tell him that I took that equity out, right?” He also suggests that they make up a story to keep me from getting too upset, telling me they were making a claim against Lehman to try to recoup the funds or negotiate with banks for a reduced payment. None of this would suggest that he considered me a valuable source, indeed, quite the opposite. He was cavalier about losing my money and seemed perfectly happy to lie to me.