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On June 15, after eight hours of deliberation, the Jury in Manhattan’s federal court found Rajat Gupta, 63, guilty of four counts of insider trading. As the crimes and misdemeanors of Wall Street imploded over the past decade, many saw Gupta as one of the examples of probity. It had become commonplace to hear statements from Gupta about the lack of rectitude in the canyons of High Finance. In 2002, Gupta said, “Weak boards have allowed unscrupulous executives to enrich themselves at the expense of employees and shareholders.” Manufacturing hemorrhaged in the US in the 1990s and 2000s, but still the US manufactured the largest number of billionaires in the world. By 2004, the top 1% of Americans earned $1.35 trillion, greater than the total national incomes of France, Italy or Canada. In 1982, there were 13 billionaires in the country. By 1989, their tribe increased to 67. The debt-financed boom market of the 1990s produced a flood – by the mid-2000s there were between 400 and a 1000 paper billionaires. PNC Advisors did a study of the wealthy a few years ago. They asked the very rich whether they were secure. The typical answer is that, no, they are not satisfied. The rich wanted to double their net worth or income. Rajat Gupta was not among the billionaires. He counted his wealth in hundreds of millions. As one of his friends told me a few months ago, “Rajat was keen to add another zero to his portfolio.”
Born in Kolkata, India, Gupta was trained at the crème de la crème of educational institutions: Delhi’s Indian Institute of Technology and then Harvard Business School. He joined the consulting firm McKinsey & Company in 1973, running the Scandinavian and Chicago offices. In 1994, Gupta was elected to head McKinsey, which he did for three terms till 2003. In his book on the consulting industry, Lords of Strategy, Walter Kiechel writes that these “management engineers” can “be fairly hermaphroditic creatures, one minute exhibiting a professor’s passion for the great clarifying concept, the next displaying sales skills worthy of a street hustler.” Gupta fashioned himself as a professor, building up a reputation for sagacity in a world that had degenerated into social cannibalism. Gupta left McKinsey with silver-plated wealth and a gold-plated reputation.
Under Gupta’s watch McKinsey became a global giant, drawing enormous fees as it joined hands with IMF technicians to promote the private sector against the public good. It had become a cliché to read a McKinsey report, eager as it always was to break down public sector firms and utilities and offer them into the pirate sector. Money was to be made in privatization and in merger and acquisition. There was little concern for social production and for the social costs of these endeavors. McKinsey sent off its alumni to head its client’s firms. Examples abound: Morgan Stanley’s James Gorman leads the pack in the world of Money, Boeing’s Jim McNerney in the world of Production, and Louisiana’s Bobby Jindal in the world of Politics. McKinsey’s people are everywhere, as are its fingerprints in the detritus of globalization.
Gupta left McKinsey in 2007. Acquaintances of his say that he had lived amongst the super-rich and possibly envied their monetary successes. In 2006, he met Raj Rajaratnam, the head of Galleon, one of the largest hedge fund firms. By 2009, when Rajaratnam was arrested, Galleon was trading $7 billion. With Rajaratnam, Gupta set up New Silk Route, a growth capital firm with a focus on India. Gupta’s reputation was golden. He joined the boards of Goldman Sachs and Proctor & Gamble. In 2009, Rajaratnam’s Galleon sank, as he was arrested for insider trading along with Anil Kumar. Both were found guilty and sentenced to prison. Kumar sold Rajaratnam information from McKinsey. Gupta was accused subsequently of leaking Goldman and Proctor & Gamble information, gleaned from board meetings. After one consequential meeting held in St. Petersburg, Russia, in June 2008, Gupta apparently called Rajaratnam twenty-three seconds after the meeting ended and is said to have passed on information about Goldman’s various deals (involving the purchase of a bank and AIG, as well as of an inflow of cash from Berkshire Hathaway).
Gupta’s defense strategy did not circle around the facts, which seemed self-evident. He was at a board meeting, he heard some profitable information, and he made a phone call to a hedge fund friend, who then traded on those details. The phone call had been tapped because of an investigation against Rajaratnam (who is now serving eleven years). Instead, the defense argued that Gupta is a man of integrity and could not have done anything illegal. After all, Gupta had been part of Clinton’s Global Health Initiative. Judge Jed Rakoff dismissed this line of argument; “The annals of white color crime in this district are filled with people who wanted to make themselves respected, powerful members of society by giving to charity.” The Judge was not done. He had more to say. “A person who might be totally dishonest in numerous ways might still be interested in eradicating malaria.”
The US Attorney who tried the Gupta and Rajaratnam case is Preetinder “Preet” Singh Bharara, born in Ferozepur (Punjab) to a Sikh father and a Hindu mother. A Harvard and Columbia product, Bharara nonetheless went into public service. He has a mixed record as the government’s attorney. His office has vigorously prosecuted anti-terrorism cases, using government-paid informants in vulnerable communities. To instigate crime and then prosecute it seems to be the definition of entrapment. The FBI has infiltrated Muslim student groups and cultural organizations, seeking youthful firebrands whose dissatisfaction is twisted around into terrorism. In Bharara’s opinion, “as crime has gone global and national security threats are global, in my view the long arm of the law has to get even longer. We can’t wait until bombs are going off.” This means that the government has to spend its time “setting up cases against individuals who do not represent actual threats to the United States” (this is the verdict of Melinda Sarafa, who represents a Lebanese man caught in a narco-terrorism sting operation).
On white-collar crime, Bharara has been impeccable, giving little quarter to those who feel culturally validated to add an extra zero to their wealth. As the Gupta case came to a close, JP Morgan’s Jamie Dimon sat before the US Congress, smugly talking about the insulated world of finance. JP Morgan had just lost billions of dollars in a series of derivative-driven trades. Under Dimon’s watch five chief risk officers went through that job in six years. This is a legal shenanigan, with JP Morgan playing the casino with ordinary people’s money with a masquerade of risk management. But Bharara will not be able to get his hands on Dimon. He has only the obvious cases in hand. Two years ago, Bharara said that insider trading is rampant. These cases, as he said after the Gupta verdict, “put that claim into stark relief.” Gupta, Bharara noted, “has now exchanged the lofty board room for the prospect of a lowly jail cell.” Sentencing will be in October.
Vijay Prashad is the author of Uncle Swami: South Asians in America Today (New York: The New Press, June 2012)