Rajat Gupta: Charming and persuasive Indian role model with a fatal flaw

Former McKinsey boss Rajat Gupta has been indicted on criminal charges - which he strenuously denies of passing inside information to Raj Rajaratnam’s Galleon fund.

With the benefit of hindsight, it's usually easy to spot the fatal flaws that lead to a final unravelling, says The Economic Times (India). "Think of Dominique Strauss-Kahn or Bill Clinton and their womanising, or the countless politicos undone by liquor. Greed too is usually apparent." Not so in the case of the apparently squeaky clean Rajat Gupta, who was last week indicted on criminal charges (which his lawyer describes as totally baseless) of passing inside information to Raj Rajaratnam's Galleon fund. The former McKinsey boss has landed himself "in about as bad a strategic position as you could imagine".

Charming and persuasive, Indian-born Gupta was one of the "American elite". He listed Goldman Sachs and Procter & Gamble among his multinational directorships and was a former special adviser to Kofi Annan at the UN. Yet prosecutors allege this "quintessential insider" abused his position to pursue a grubby sideline as a corporate spy relaying confidential news to Rajaratnam "with the speed and diligence of a Reuter's reporter out to scoop Bloomberg". Records show that in September 2008, when the Goldman board discussed Warren Buffett's planned $5bn cash injection into the bank, Gupta was on the phone to Rajaratnam 16 seconds after the conference call broke up. The Sri Lankan trader subsequently booked an illegal profit of $840,000.

Gupta is the first "fully-fledged member of the blue-blooded establishment" to be fingered, says Breakingviews.com. His arrest "has put corporate America on notice". The charges will be tough to prove (see box), "but a conviction would be the ultimate deterrent".

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As the original "global Indian", Gupta was "a case study of how learning and old-fashioned hard work could lead to success on a global scale", says Reuters India. Born in Kolkata in 1948, the son of a journalist and a Montessori school teacher, he was orphaned in his late teens. After studying at the competitive Indian Institute of Technology, Gupta won a scholarship to Harvard Business School and, from there, segued effortlessly into McKinsey. Most young guns use McKinsey "as a breeding ground for careers in corporate America", notes The New York Times. Gupta became a "lifer". Having made his mark running the Scandinavian office, his election as the first non-American to run McKinsey in 1994 "was a sea change" for the organisation. Gupta served as CEO for three three-year terms (the maximum under McKinsey's rules) before retiring as a senior partner in 2007.

Gupta has lived outside India for four decades, raising four daughters in a mansion in Westport Connecticut. As one compatriot noted, he has "what every Indian seeks... recognition [and] respect". What a tragedy if a man who is a role model to many Indians is in fact corrupt.

Ego trumps money for insider traders

Rajat Gupta has been "an elusive target" for prosecutors, says Reynolds Holding on Reuters Breakingviews. Despite being named as a co-conspirator in Rajaratnam's trial, he wasn't charged, giving "the impression of a weak case". Unlike Rajaratnam, Gupta doesn't seem to have been caught on tape discussing the alleged wrongdoing. While he bought into a Galleon fund, there's "no evidence that he benefited from his tips typically a requirement for insider trading convictions". As Gupta's lawyers point out, he lost $10m from his investment. Yet as well as the calls made after the Goldman/Procter & Gamble board meetings, Gupta had further business dealings with Rajaratnam that suggest he benefited in other ways. "Such evidence may lack the slam-dunk quality of wiretaps, but it has sufficed in previous cases."

Motive is certainly a mystery, says The Economist. Why would the already wealthy Gupta risk his reputation and freedom bysharing confidential information with a hedge fund manager? A 2009 study of convicted insider traders suggests that, more often than not, the crime is not "economically rational" and that "friendship and ego may matter more than money".

Ego does look to have been a possible driver in Gupta's case, says Businessweek. After giving up the top job at McKinsey, he seemed determined to "pursue a second career as a dealmaker" coveting a role at private equity house KKR and co-founding his own fund, New Silk Route Investments, in 2006. Gupta's foray into Wall Street "could not have been more ill-timed", says The New York Times. Moreover, his flash new acquaintances worried old friends. "I told him once, If you are in a herd of pigs, you'll also smell like a pig'," recalls Bala Balachandran, a business professor who has known Rajat Gupta for three decades. His words appear to have fallen on deaf ears.