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“Your competence is only as good as you know how to judge the people around you”.

Rajat (Kumar) Gupta did not seem to have given hid to this simple and old proven fact. Once a revered guy, now became a fallen guy after he started trusting a unscrupulous person named Rajratnam .

A remarkable journey of a middle class Indian immigrant, whom any aspiring student would want to emulate, was disgraced by insider trading charges. The IIT rank-holder (ranked 15), who became an orphan at the early age of 16, went on to become the first Indian CEO of any multi-national corporation (Was at the helm of affairs of McKinsey for more than a decade).
A son of a freedom fighter (his father, who later become journalist) and a teacher (his mom), has been convicted by US prosecutors on 4 counts (out of 6) of conspiracy and securities fraud. The guy, who boasts a director seat on the board of — Goldman Sachs, P&G and American Airlines, is waiting for his sentence to be announced later this OCT where he may get jail term of upto 25yrs.

After sleeping for many yrs, US regulator and justice system is finally waking up to clean up the cases related to insider trading and other wall-street frauds. But in doing so, they resorted to some never-seen-before tactics named wire-tapes. This way of interrogation raises two basic questions:

  • Should the investigating agency hack the privacy of any individual in the name of investigations of any nature? Using it for some cases of grave nature is justified but is it fair to use it for insider trading or capital market frauds?
  • How much reliance should they put on the circumstantial nature of the conversations recorded in such tapes? Is putting 100% reliance on such peripheral nature of evidence is justified?

Rajat’s indisputable commitment and integrity has been testified during his trial by many of dignified people. Barring blankfien, everyone else has accepted the fact that he has been the man of utmost commitment and integrity for last 3 decades. Blankfein’s (the GS boss) testimony made the jury to conclude that Rajat has indeed breached his fiduciary duty by not keeping price-sensitive, non-public info confidential. In US and everywhere, people know how easy it’s to leak GS board’s under-discussed agenda.
A Counter questions to blankfein, you were discussing the proposal to bring in the equity capital from warren buffet into GS, which was alleged to be leaked by Rajat. Everyone knows the importance of liquidity for any firm. GS had a liquidty crunch and this proposal was like a life-line to GS (Without it they would have met with same fate as Lehman). So, Tell me What made you to reach to such a dire strait. You had bought some complex mortage bonds (by disregarding underlying nature of its risk) and then bought protection(CDS) for it from AIG. Didn’t you breach your fiduciary duty by not disclosing all the facts to board related to your transactions? You escaped unscathed just because your friend Henry Paulson was the US secretary of treasury.Now you, stupid, are alleging Rajat for leaking that info about getting a life-line .

His testimony for Gupta’s insider trading trial seems to be a case where a serial-killer is doing testimony against the person on trial for a petty thievery.

Yes, it was price sensitive info but for person of Rajat’s stature, it seems highly implausible that he would have tried to use it for his personal gain. The conversations, which he had with Rajratnam (just after the board meeting), could have been categorised as informal nature of discussions. Though, Rajat should not have discussed it but in those times lehman bankruptcy and AIG bailout talk were the only topic on everyone’s minds. So, Rajat would have slipped a bit and made some reference of GS board discussion to Rajratnam. This felony just warrants a censure not more than that. Financial markets were already abuzz with so many hearsay. So, markets were already irrational. It was a clear case of making some one scapegoat. So, US agencies picked Rajratnam and then Rajat.

Rajratnam was a clever man who used Rajat for his own favours. While Rajat thought Rajratnam is reliable person and he kept on sharing his experiences and his views about capital markets and in some cases some secrets as well. Rajranam had even convinced Rajat to invest his money in his hedge fund(Galleon) . The wire-tapes did not capture the instances where Rajat got to know the real motive of Rajratnam’s association with Rajat. This explains that rajat did not participated in sharing the info knowingly (The Law says person should not knowingly participate in sharing price-sensitive info). Though he knew he price-sensitiveness nature of the info, But he did it all unknowingly. So it should not be categorised as abuse of the positions or insider trading.

If he wanted to make money, he already had other smart ways of doing it. This is so because he had never been lack of ideas. During his long corporate career, he had established relationships with so many investors. US agencies who are calling him greedy should have realised that so far he used such relationships only for helping several NGOs and educational trusts in raising the money. With such huge list of contacts, he would have easily floated a private equity and picked up a right man to run the fund. This would have earned him millions.

Preet bharara, the US attorney (a person of Indian origin himself) took a little more interest in his case (seems to be an ego-clash between two Indian big-wiz). This guy cherry-picked only those wire-tapes which were making the Rajat’s defence weak. While other non-chosen tapes could have countermanded such allegations.

From the entire episodes, it has become evident that these cases were premeditated(by US agencies) and racial in nature. Nobody in the wall-street is a saint. It is just that some are less corrupt and some are more. US agencies seem to be fine with this corruption as long as these are done by their own white races. This is the reason that even after 4 yrs of Lehman bankruptcy, AIG bailouts, Citibank bailouts, GS bailouts etc, the root cause of these incidents are still unaddressed. Though, they are ensuring that they keep on doing clean-up exercise of small petty issues by using circumstantial evidences and publicizing it so much so that nobody may raise questions on their incompetence in handling the real issues.

Highly frustrating world….. !!

This entire drama has a potential to inspire many Bollywood producer to make a masaala  movie out of it . Though, i’m sure that Obama would not let any Hollywood producer to fund a movie made on such storyline (which depicts US in bad lights) …… 🙂