Thursday, 27 October 2011

The Fall of Rajat Gupta

Rajat K. Gupta, former director on the Goldman Sachs' Board and trusted advisor to several prominent companies, was indicted on Wednesday on charges of security fraud. Mr. Gupta is suspected of divulging information to Raj Rajaratnam, who was sentenced to 11 years in prison earlier this month for insider trading. Mr. Rajaratnam, head of the Galleon Group hedge fund, is believed to have received various tips from Mr. Gupta regarding both Goldman Sachs and Proctor & Gamble. For example, Mr. Gupta's phone records show that he called Mr. Rajaratnam immediately after a board meeting discussing Warren Buffet's $5 billion investment in Goldman Sachs in 2008. Soon after, the Galleon Group bought shares of Goldman Sachs, which eventually netted a profit of about $840,000. Mr. Gupta is also accused of sharing information about both Goldman Sachs' and Proctor & Gambles quarterly results. However, the strength of these accusations is uncertain due to the circumstantial nature of the evidence. Regardless, though a conviction is tentative, the indictment itself is a huge blow to the reputation of an exalted executive.


Mr. Gupta, a native of India, attended Harvard Business School and then began a long and illustrious career at the prestigious Mckinsey & Company. Eventually rising to the rank of managing director, Mr. Gupta pushed the boundaries of the South Asian businessman in the industry. He also expanded Mckinsey's presence in emerging markets such as India and China. Furthermore, Mr. Gupta only continued his ascent in the business world after his departure from Mckinsey. He consulted for the United Nations, sat on the boards for Proctor & Gamble, Goldman Sachs, and AMR, and advised Jeffrey R. Immelt of General Electric as well as Henry Kravis, co-founder of the private equity firm Kohlberg Kravis & Roberts.


The prestige and success Mr. Gupta has achieved have raised questions about the motivation behind his actions, especially because there is no clear indication if Mr. Rajaratnam's trades directly profited Mr. Gupta. One of the explanations that have arisen is that Mr. Gupta's ambition led to a desire to participate in the more profitable activities of Wall Street and become a member of an elite community consisting of hedge fund managers and private equity giants. Read more about both Mr. Gupta's background and the details of the indictment at:

http://dealbook.nytimes.com/2011/10/26/gupta-surrenders-to-authorities-on-insider-trading/


By Meha Patel

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