Tuesday, March 29, 2011

The Rajat I Know

A rather sanctimonious mass email I've received is prompting this post.  Rajat Gupta, former head of McKinsey has been widely praised and admired though he is now in the news for passing material non-public information to Raj Rajaratnam (RR) of the Galleon hedge funds.

The email titled "How Much is Enough?" echoed some other chatter about how the wealthy and highly respected Rajat let greed get the better of him and ruin his reputation by abetting insider trading.

I feel compelled to balance the picture about Rajat whom we know personally since 1991 when I had just come to the US for PhD studies at the University of Chicago.  I knew nothing of McKinsey or what he did at that time, and we drove to his house simply to deliver a gift from India sent through us by one of my favorite ex-bosses in the IAS.  That was Mr. P.K. Mattoo, Chief Secretary of HP state till 1987,  and uncle of Anita Mattoo Gupta, Rajat's wife and a warm, wonderful person whom he met as a fellow student at IIT Delhi. 

I've rarely seen anyone more gracious, modest and personable than Rajat, in spite of his brilliance and success at McKinsey.  He was that way in all the subsequent times we met him, and Mr. Mattoo told me how Rajat was ever ready to sleep on the floor when he and family would visit and stay with them in India. In 1994 after Rajat became head of McKinsey, my friend Harsh from the University of Chicago who joined McKinsey told me about how he and other fresh recruits met Rajat at a welcoming party for them.  He said the recruits were blown away when Rajat came up to them individually, put out his hand and diffidently said, "Hi, I'm Rajat Gupta," before chatting with them.  "As if anyone in the gathering didn't know who he was," Harsh marveled, "And he was on the cover of many major magazines."

We saw Rajat and family after a gap of of over 10 years in June 2009 at a high school graduation party for the daughter of Sunil, Mr. P.K. Mattoo's son.  Rajat was as unassuming and cordial as ever, and introduced us to his daughter and her African American husband who had been warmly welcomed into the family.  We also learned about Rajat's hectic schedule, working for free with non-profits, including with the Gates Foundation (that he's now stepped down from) to help eradicate malaria.

While he certainly violated confidentiality as a Goldman Sachs director in his conversations with Raj Rajaratnam, he seems to have done it out of a misplaced sense of friendship, without profit to himself.  I saw SEC's most damning evidence against him, this 18 minute transcript of his call with RR.  The disclosure seems incidental to the main conversation, and as a result of RR pumping him for information.

The other striking incident cited is Rajat calling RR seconds after a Goldman board meeting where Warren Buffet's $5B investment was disclosed.  Minutes later RR placed bets on Goldman shares that netted Galleon $900,000.  To me, it's very out of character for Rajat to call someone just after receiving confidential information to tip them off for illicit gain.  Even a March 7 Times article referred to some curious aspects of the SEC's case against Rajat.

The kind of scenario I'd envision is that RR tracked scheduled board meetings and timed messages requesting a call back to Rajat accordingly.  After meetings are over the attendees typically get to their other activities, including returning calls, as Rajat did with RR.  Then in the course of other conversation that was ostensibly the purpose of RR's contact, he casually asked Rajat some leading questions about Goldman, and pounced on any resultant cues.  RR is obviously sharp as a whip, but his laid back style and humor interspersed with personal chats could disarm a friend into revealing more than he should.  Rajat's amiable and forthcoming nature could make him hesitate to clam up and pointblank refuse to answer RR's "incidental" questions.

In sum Rajat's approachability and helpfulness has apparently proved to be his undoing.  His lack of motive or ill intent seems to be why he hasn't been criminally prosecuted, though he's had to resign all his board positions and suffer ignominy. 

Sometimes bad judgment or carelessness can land very good people in trouble.  I'm sorry to see Rajat in this plight and hope he gets out of this okay.

35 comments:

Harpreet Datt said...

Friends are always a good indicator of character and it is not often that we read an eloquent, spontaneous piece such as this.

However, those in power always need to be wary that they are being befriended for reasons that don't quite add up, as they are at to apt to be dragged down.

Sandip Madan said...

Too true. Thanks for calling this eloquent. :-)

There are now media reports about "expert networks" and how insider tips and trading is widespread among major hedge funds and Wall Street players. It's unclear if RR went much farther than the others, or just happened to get caught.

Anonymous said...

Sorry Sandip ! A smart and savvy person like Rajat cannot be fooled so easily by a sleaze like Rajratnam.Th phone call regarding Berkshire Hathway was originated by Rajat not bu Ratnam.It is Guptas greed and a carrot of being the chairman of Galleon International prompted him to share information with Ratnam.Remember he was aslo heavily vested in Galleon funds. SO, indirectly benefited from Ratnams actions. He also lied to the ISB board that ther there are no tapes incriminating him amd the relationship between Ratnam and him were strained.Divulging confiential board information minutes after hearing it is definitely smacks of bad intent.Rajat obviously has a dark side which is kept well hidden. Money, Greed, power, influence are powerful intoxicants and Rajat was as susceptible as any other human being and must pay the price. He has brought shame and dishonor on Indian Americans in the US.

Sandip Madan said...

Everyone is entitled to their opinion. I shared my perspective as I know Rajat personally.

I'd welcome folks identifying themselves and will keep purely anonymous comments as above for a week or two.

Anand R Raghavan said...

Sandip,

Your blog post on Rajat Gupta is the first humane, credible and balanced assessment of this situation I have read. In my view, your friendship with Rajat infact places you in a good position to be able to look through the superficial events and arrive at the core intent that could have possibly transpired in Rajat's interactions with Rajrathinam. What you say closes the loop of understanding for me and I hope Rajat is able to remain at peace with himself as he gets through this challenging time.


For a good man like Rajat Gupta, this is probably a Karmic opportunity to accept the fickle nature of the world and embrace the quiet warmth of his own inner self.

Anand R. Raghavan

Sandip Madan said...

Amen to the last, Anand, and thank you for your comments.

SInha said...

I also know Rajat, but my opinion is different from yours. There is some merit in the previous writers observation that Power, Greed, Influence and money can corrupt most people including Rajat. The 18 minute conversation showed how deferential Rajat was to RR. Imagine a savvy Rajat seeking RRs opinion on the KKR offer.He revered RR because of RRs billionaire status and aspired for the same.Rajat owns multi million dollar house in CT, vacation homes in florida and Aspen Colorado. Evidently lavish life style and money is important to him. RR mentions in the wire tap to Anil Kumar that Rajat is having family problems, not surprising with four daughters and being away most of the time. I feel sorry for the three younger daughters. His brother Kanchan is more humble and down to earth doctor quietly serving humanity whilst his brother is raking in millions.Rajat now is probably very different from the Rajat of 1991.

rajaram said...

I am reminded of a tree that grows gracefully, nice, tall and straight and at some point suddenly gets stunted.It is distressing to note that a stellar career of 34 years has come crashing down in a matter of three weeks.Sadly he will be associated more with the insider trading scandal than his life time of success in other fields.A fact proven easily by googling Rajat Gupta. There are more references to the SEC and RR case than anything else.The fall out has just started.I can only predict more bad news for Gupta if RR is convicted and sent to jail.The SEC case at worst may result in monetary penalties and a ban in holding positions in the finance industry.The real suffering is for the family and his social status apenalty they are paying for having a celebrity father.He will undoubtedly go through a period of depression, alienated and shunned by the rich, powerful and well connected crowd he was jet setting with.Unfortunately life is such very unfair.A lesson to be learned for the rest of us as to how much is too much and being content with what we have.

Trivedi said...

Sandip, you have already found Rajat guilty. The whole issue is whether the information was confidential, non public but [b] not material [/b].Here is a common sense analysis of what happened.

The giver of information (Gupta) knew that the information being shared was confidential and non public.

The receiver of information (RR) knew that the information being transmitted was confidential and non public.

The receiver (RR) acts on the information and rakes in millions of dollars.

The giver(Rajat) shares no proceeds from the illicit trades, but a possibility of a future Chairmanship in Galleon.

Since clear "quid pro que " cannot be established Rajat has not been criminally charged. The SEC will have to prove that a non monetary benefit was reason sufficent to find Gupta guilty on civil charges.

Unfortunately Rajat shared such information three times and that doesnt bode well for him. If the SEC fails in their effort. I agree with a previous writer that Rajats reputation has been irreparably damaged. The top gentry will shun him and will be loathe to see him in their presence.Thats a greater punishment than all the millions he may have to pay the SEC if found guilty. There is a silver lining for all
this, he spends more time with his family than with the so called jet set crowd.

K.Muthanna said...

Information has value and corporate information that is not in the public domain may have extraordinary value. Rajat Gupta as director was entrusted with something that belongs to the corporation, something that has value, something that can be stolen or used to harm the corporation or others and is something that does not belong to him to use as he saw fit.Many of us may never be privileged to serve on corporate boards, but we can learn a lesson from Rajats indiscretion and spare ourselves the torture that he is going through.

Priti Jain said...

Muthanna is right. Confidential valuable and privileged information is entrusted to the very few. Knowingly divulging this information shows utter lack of responsibility.That alone is enough to permanently disbar a person from ever being in a responsible position. A SEC civil action is not required to prove this case. Mr Guptas reputation
agreeably is tarnished for ever.His ability to recoup this and restore his status is highly quetionable.

Shrikumar said...

It is surprising how people dwell on the negative and how a few negatives eclipse a lifetime of good doing by this accomplished individual.I have also followed the case closely and noted that initially the Indian community came out strongly in favor Rajat giving him the benefit of doubt both here and in India. in particular the luminary board members of ISB stood by Rajat. Then came the only 18 minute audio tape that has been made public. All the support disappeared instantaneously as Rajat stepped down from every board he was appointed.An admission of critical wrong doing.I guess he will quietly retire from the public eye and continue to benefit the Indian diaspora behind the scenes. I wish him luck.

D.Saxena said...

The case smacks of bringing down an outsider in the clannish wall street crowd. Regretfully the US district attorney has named him a coconspirator and also happens to be an Indian American.The SEC wanted to make this a show piece of action after they were caught napping at the switch in the Madoff Ponzi scheme. They also anted to move swiftly to use the easier provisions in the newly enacted Frank Dodd bill.Rajat was a victim of circumstances but cannot escape the fact that there was clear wrong doing on his part.Rajat was injured by the same glass pieces of the glass ceiling he broke through.

Dr Mehta said...

I think that the fall out for Rajat began in March 2010 when the WSJ first reported about the audio tape in existence by the US Attorneys office.Thats when Rajat vacated the Goldman Board. But for a full year he remained on the other boards, until the SEC brought civil charges, reportedly against the objections of the US Attorney. Why the US Attorney didnt act after knowing that confidential information was revealed by Rajat remains a mystery.It is reported that Rajats Attorney Gary Naftalis was pally with the US Attorney Preet Bharara.
Which shows that Rajat has still a few cards to play and will emerge out of this with just a slap on the wrist.As to his reputation that unfortunately cannot be repaired no matter how many endorsements he gets from Sandip or other luminaries.

Pankaj Roy said...

Does it matter, what happens to Rajat. I guess the answer is, it does to some. IIT graduates, ISB graduates
and certainly to Mc Kinsey which expanded its presence immensely in India.As others mentioned it certainly impacts his immediate family , friends. well wishers and those who benefited from his contacts. But for the rest of us it will be a fading memory of a thunderous fall of a Indian titan.

Harish Malhotra said...

Rajat had the ear of the PM Manmohan Singh . It is controversial whether he used it for good or to the benefit of the corporate elite in India. If he brought in millions from the gates foundation and used his foresight to solve the bigger social issues of Health,Poverty, Diseases, that itself is reason enough to laud his efforts regardless of other ventures which might have benefited the corporate elite.

K.Narayanmurthy said...

Rajat held a high place along with Vikram Pandit, Indira Nooyi. Sadly both Victor Menezes and Rajat tarnished their images mishandling their professional lives.
If he is found guilty there is a talk of revoking the Padma Shri honor bestowed on him. Obama administration had already distanced themselves by not inviting Rajat during Obamas visit to India. The fall out started well before the SEC charged him.As previous writers have mentioned, the audio tape did considerable damage to his credibioity.

Dhir Shankar Mathur said...

Curiosity got the better of me to listen to that famous 18 minute tape on Wikipedia.

Please listen to the wiretap of the call yourself. The tone of Gupta’s voice will tell you much more than simply reading a transcript

Here is the former Managing Partner of McKinsey acknowledging that Rajaratnam is paying offshore cash to a McKinsey partner, violating McKinsey’s internal disclosure and conflict of interest rules, as well as evading U.S. taxes.

A “crime” by Gupta? Probably not. More a sin of omission. But disgraceful? Absolutely.

At one point, Rajat says to Rajaratnam, almost pleading “…you know how I can be helpful in Galleon International. By the way, not Galleon International, Galleon Group…”

Gupta’s vocal emphasis is strong and so is the implication – “I want to be part of whatever you’re doing Raj.”

This wasn’t a man being tricked into joining Rajaratnam’s web of conspiracy. Gupta the striver seems only too happy to join.

There need not be a crime for Gupta to be a disgrace to the positions he was beztowed to hold.
I am sure all the resignations has left him with nothing. As somebody else said more time with his family and brood over his missteps.
Convictions or not the damage is severe, deep irretactable and permanent.

Arun Bhatt said...

I recently meet a group of IIT alumni. It appears that they have been absolutely riveted to the Galleon case. Every tid bit of information is passed between them .They seem to soak every editorial, any news clip and discuss, dissect and analyze all the information. Guptas involvement has made great fodder for discussion at many Indian parties.Apparently the educated and elite of Indian Society seem to relish the involvment of Indians at the higher strata of American society for better or worse.

Anand R Raghavan said...

"The Vedanta recognizes no sin it only recognizes error. And the greatest error, says the Vedanta is to say that you are weak, that you are a sinner, a miserable creature, and that you have no power and you cannot do this and that."
— Swami Vivekananda

The social collaterals of fame & anonymity and the manner in which they equip us as individuals to engage in society are less relevant compared to our own individual journeys as spiritual beings and the manner in which we embrace our own life experiences. Swami Vivekananda's words are relevant in this regard and particularly to this issue as they point towards the underlying essence of eastern thought towards constant evolution without the burden of a false sense of morality that damages more than it heals.

Ashok Sinha said...

This recent article in Bloomberg busineess week presents the most detailed facts about Gupta.
Quite conclusively it states Rajat was not what he appears to be.

http://www.businessweek.com/magazine/content/11_22/b4230056624680_page_8.htm

Anonymous said...

NYT reports he surrendered to FBI this morning.

Anonymous said...

I think this is an eloquent analyses of Rajat's persona. I will add to this my (biased) opinion of the workings of Wall Street. The fact is that in a rational market there are two ways of making money consistently - one, do superfast (and I mean < 1 second) arbitraging or get insider information. The latter, though illegal, is commonplace, and, by definition, done by people in powerful positions. Rarely has anyone been charged, let alone proved guilty. Rajat may be just the tip of the iceberg and may be either unfortunate or profiled. Thousand others like him have gotten away in the past and will keep getting away. Rajat will probably get out too with a smeared reputation and a wallet sucked dry by lawyers. Endnote: It is easy to speed in a highway where everyone goes over the speed limit. Being caught for speeding says nothing about the nature of the driver and his driving behavior on local roads. SO LETS NOT BE JUDGMENTAL!!!

Anonymous said...

MEHER Baba will protect innocent Rajat!!! I will pray for him and his family.
Chitranjan Sharma

krishna said...

POINT 1:
Pity a country or diaspora that needs a hero.

Like so many other Indians... Sandip, you defend Rajat as you cannot fathom how someone you have revered could err. How could your hero falter ? Middle class India like white collar Indian professionals in the US have always wanted "their own" heros. Someone they can look up to. But when your hero falters you can't accept it.

That is no basis for such an eloquent yet ludicrous argument.

Rewind to 2008 - Rajat gets out of a Goldman board meeting and within 16 seconds calls RR giving him confidential info. And even here you think it was RR who coerced Rajat to call him back. No one put a gun to Rajat's head forcing him to make a call. McKinsey has always recruited people who have a mind of their own. Especially Partners.

POINT 2
BE YOURSELF. BE HUBLE.

I am sure Rajat has a lot of admirable qualities. In fact it was his trademark humility, non confrontational and endearing nature that bought people close to him.

We are all human. We make mistakes. Sometimes we get lost.

While Rajat (who was wealthy beyond his dreams) didn't probably help Raj to personally make money on such information, there was some tacit understanding that his business friendship and assisting RR would help in other ways. He wanted to be a bigger STD than he was...and helping RR helped Rajat roam around in more rareified circle.

Sometime we want to be a bigger STUD MUFFIN. And that was Rajat's undoing.

It would have been better for Rajat to take the high road, sumbit himself in early 2011 and admit that he made an error. And work something out with the authorities.

Instead he employs an aggressive, asture US attorney and in typical American courtroom drama fashion wants to "take panga" with the govt...and becomes the aggressor.

He may win the case in April due to some technicalities. That's hardly the issue.

Rajat had a chance to come clean and tell it as it is. And in not doing that he has moved away from what contributed to his success. Being himself. Being humble.





Your hero was a false hero. And you my friend can't accept that.

Anonymous said...

It had to happen, the SEC was waiting in the wings for the Fed to convict RR. Convicting Rajat may prove far more difficult. But as some previous bloggers have correctly opined the Life and Times of Rajat Gupta as an illustrious and successful person has been all but destroyed.I sympathize with his wife and four daughters, of which three are unmarried to live with the shame of negative publicity of their disgraced father.

Anonymous said...

Kudos to d saxena! He has hit it right on the nail. Why preet bharara NOT going after these corporate white banksters?? Even maker of film "inside job" said at the Oscars that NONE OF THESE WHITE CROOKS WENT TO JAIL!

Anonymous said...

First of all,any reference to Rajat's ethnicity in the on going proceedings is without merit. I don't know how many of you have realized, the federal judge assigned to this case has been very careful in making sure that Rajat gets his day in court fair and square, and consequently has challenged the prosecutors to refrain from any shenanigans.

However, I regretfully think that he would not be able to mount a successful defense as the odds are heavily stacked against him. The existence of wiretaps,their timings, and the cooperation of Anil Kumar pretty much have sealed his fate. What other damaging testimony will come from Anil Kumar is still unknown in light of the fact that they were involved in a consulting co.( while still employed at Mckinnsey and against policy) and other activities.

The only sliver of hope, the judge appears to be sympathetic and may cut him a slack as he will have a lot of discretion in the end.

Finally,from all news reports, Rajat appears very sad and somber. It is uite understandable. MAY THE ALMIGHTY LOOK AFTER HIM, HIS FAMILY AND THE LOVED ONES.

Anonymous said...

My question to Sandip:

Be on the opposite side of this story, Whihc is about a common man invested his life long savings into a 401k, majority of it is in shares and bonds. Hoping to send their kids to college or retirement from the funds.

Instead:
If the Hedge Fund Execs, dispose millions of shares of one company just because they had prior knwoledge about, this makes the common man looses all his 401k holdings he has invested in this company as the company lost his equity.

In that sense, I feel Rajat is Guilty as Hell, to spoil lives of several people knowingly:

Anonymous said...

This is simple and straight forward. RR is a crook and so is rajat Gupta, Lets cut through this BS that he is a humble down to earth and sleep-on-the-mat guy and judge him - he is a disgrace to himself , his family and to his friends

Anonymous said...

OK, so now the time has come to for the final cards to be played in this high stakes drama.

In my view, any sentence for Rajat MUST be as stiff and punishing as the one meted out to Rajaratnam - ONE IS JUST AS GUILTY AS THE OTHER. And both should serve their due time in jail.

People, get your popcorn, fav soda and grab a seat.It ain't done till the fat lady sings.

Cary said...

I'm trying to look at this objectively: why would someone with enviable money, power and influence risk all of it?

IMO, INSECURITY.

Insecure that he will lose all he has one day, he worked to gain more of it. Perhaps, an immortal amount of it. Now, Rajat is possibly one of the smartest men in the world. Imagine what a dooms day situation might play out like in his awesomely intelligent head?

Often, we're so busy solving immediate problems, that its hard to take a step back and ask yourself basic fundamental questions. More than anything else, what I learn from this is to DISSOCIATE.

It will have a huge impact on how the Consulting Industry operates. And hopefully, we'll see more transparency in business.

sunil kumar said...

Ii had been following this and read about rajat gupta and learned about him for his education, career, charity, philanthropy, family life and a great personality. Its an error of judgement which had costed him. But i personally feel he is not a person who can do anything like insider trading for profit. Also, there is no direct evidence, Everything is circumstantial and doesn't show a profit to mr.Rajat gupta and that too peanuts.
If one has to be convicted with these joining of dots lot can be perceived as per each inividual in this world.
Life should never be a game of bad time atleast for hard working people.

Amarnath said...

Its over, all the character witnesses and all the efforts to combat malaria , aids and TB had little sway on the jury. Why? It had nothing to do with passing on confidential information and board room secrets that directly benefited RR and indirectly benefited Rajat.As the Judge put it even crooks can have philanthropic side stemming from a a guilt complex.

V Prashar said...

I feel his time is bad. And his life story is a lesson that Bad Friends are like snakes. Keep distance from them. Hope, he'll come out of it fine. Being a lonely kid he reached IIT, Harvard and other big places. It feels bad that he is going to suffer just because he was not able to keep away from bad, greedy people.