Rajat Gupta convicted of insider trading
Moneylife Digital Team 16 June 2012

Manhattan jury finds Gupta guilty on three counts of securities fraud and one count of conspiracy out of six charges; faces upto 20 years in prison


Rajat Gupta, 63, whose meteoric rise to head McKinsey & Company, is considered one of the biggest Indian success stories, has been convicted of insider trading by a US court.

Gupta, an IIT Delhi and Harvard Business School alumnus, was charged with breach of fiduciary duties and for passing on inside information to Raj Rajaratnam, billionaire founder of the Galleon Group hedge fund, who is already serving an 11-year prison sentence after being convicted for securities fraud.

After a four-week trial, the jury at a Manhattan federal court found Gupta guilty on four out of six charges – these were three counts of securities fraud and one count of conspiracy. Interestingly, the date for sentencing is 18th October. Ironically, the Manhattan district attorney, Preet Bharara, who led the action against Mr Gupta is also of Indian origin with the reputation of being a tough crusader against white collar crime.

After a successful stint at McKinsey, Mr Gupta went on to become a director of top global companies such as Proctor & Gamble, Goldman Sachs, Rockefeller Foundation and the Bill & Melinda Gates Foundation. Mr Gupta was accused of leaking information to Mr Rajaratnam about investment guru Warren Buffet’s plan to invest $5billion in Goldman Sachs at the height of the financial crisis of 2008. Goldman Sach’s CEO Lloyd Blankfein was among those who testified against Mr Gupta during the trail.

The evidence against Gupta was believed to be mainly circumstantial, although one wire-tapped phone conversation used by the prosecution to bring charges against him has been widely circulated on the internet. It is learnt that Mr Anil Kumar, a close friend and colleague of Mr Gupta from McKinsey, who has pleaded guilty in the Galleon case, may have provided evidence against him as part of a plea bargain.

Interestingly, right until the judgement, Mr Gupta’s defence has held that there is no evidence of him having profited from the leak of confidential information to Mr Rajarathnam. But this only makes his indiscretion and leaks all the more curious and perplexing.

After his stint at McKinsey, Mr Gupta has spent a lot of time in India forging strong connections with Indian business. In an unusual display of solidarity, Indian industrialist including Mukesh Ambani, Adi Godrej, Kushal Pal Singh of DLF, Analjit Singh of Max India, Yogesh Deveshwar of ITC and Rajendra Pawar of NIIT and us based author Deepak Chopra posted messages of support on www.friendsofgupta.com a website started by another former colleague from McKinsey. Ashok Alexander, India CEO of the Bill & Melinda Gates Foundation (and son of the late Maharashtra Governor, Dr PC Alexander) was among those who was to testify for Mr Gupta. As the verdict shows, none of this made any difference to the jury.

Interestingly, Mr Gupta’s conviction is another blow to the Indian School of Business in Hyderabad of which he was a founder. However, Moneylife has always had a different take on Mr Gupta and his association with a series of dodgy Indian companies and some dubious acquisitions. However, so enormous was his reputation that nobody dared to question his motives. On the contrary, the Indian Prime Minsiter sought his advice and also invited him to head the prestigious Public Health Foundation of India (PHFI) which was quietly empowered to frame health policies and received astonishingly generous funding, land and budgetary support (running into hundreds of crore rupes) from the Union and state governments.

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