Convicted in June 2012 on three counts of securities fraud and one count of conspiracy, Rajat Gupta, former head of McKinsey & Company and director at Goldman Sachs, among others was sentenced in October 2012 to two years in federal prison and a $5 million fine in one of the most high profile insider trading cases. Having served his term, Gupta has now come out with his side of the story in a book Mind Without Fear set to be released on Monday.
Speaking to Sandeep Singh ahead of his book release, Gupta maintains that he did not get a fair trial. While he accepts that he did make some mistakes, he declines any charge of passing information to Raj Rajaratnam of Galleon International for any benefit. Gupta added he was a highly visible, good target for the prosecutor in the aftermath of the global financial crisis in 2008, where they failed to prosecute any perpetrator of the financial crisis and went after him. Excerpts:
You have said that in the period after the financial crisis, it was all too easy to ascribe guilt to any one connected to the financial crisis. Was the 2008 crisis the reason why the prosecution went after you?
What is really upsetting is that they knew very well who the real culprits of the financial collapse were and yet they could not go after any one of them. All they did was to fine the institutions, which of course the shareholders paid. There was legitimate anger within the public because they had lost their homes, jobs, PFs were destroyed and there was lot of suffering and anger. While the headlines said that Preet Bharara was busting the Wall Street, actually he wasn’t. The fact that he didn’t prosecute any of the perpetrators of financial crisis, is a crime in itself. All of them got away. They got huge bonuses and none of them were prosecuted.
Recently, a book came up, ‘The Chickenshit Club’, and it tells that basically, the prosecutor is all about winning and building their political career. If they think someone is too powerful and they can’t bring them down, they don’t do it. But, if they get someone who is not as powerful but is highly visible, he is a good target.
You have written that the Department of Justice and the SEC collaborated against you. Why would they target you?
I don’t see a reason why SEC would charge me one week before Rajaratnam’s trial and they actually tried me in absentia. While Rajaratnam was never charged with Goldman Sachs or P&G, why were they playing tapes related to Goldman when they had lot of other evidence? I feel they were trying to poison the atmosphere against me. Besides, it wasn’t my trial so I couldn’t defend myself. They had no evidence to prove and they were attacking my reputation, telling stories about greed, story about 16 seconds etc. to poison the atmosphere, so that when my trial begins, it will be lot easier to convict.
A look at the charges shows a coincidence of you calling Rajaratnam after board meetings. What do you say?
Regarding the September call, I am not sure if I spoke to him. The record shows some seconds of connection. But I don’t know what the conversation was if there was any. I don’t actually remember.
There was a call in October when I spoke to him for 16-18 minutes and the discussion was about getting the money back from banks. However, in that board meeting there was no discussion about financial results. It was about Goldman firing 10 per cent of its staff. Also, the thing about Goldman losing two dollars in the quarter is not even correct and the chairman Blankfein testified that you may round it to 2 dollars. The fact is that in the financial year ending they count pennies and not round it like that. It’s like they didn’t have any real evidence, they tried to create a believable story but not a true story.
With regard to AIG, did you give Raj any confirmation?
Not quite. That discussion was because Goldman president Gary Cohn was coming to Raj’s office to reassure that Goldman was fine etc. as he was a big client. Raj called me to prepare for that meeting. Raj was thinking of taking his accounts to Europe. In the board meeting, there was general discussion exploring options such as should we buy or partner with an insurance company, or a regional bank. As Raj was preparing for his meeting with Gary, he asked me that he heard Goldman is having discussions with AIG. Since this was in all the papers by then, it was not even confidential information. But there was one mistake I did and I said, “There was a board discussion”. While I shouldn’t have said that, it was inconsequential and nothing specific.
Given the coincidences of your calls to Rajaratnam with regard to Goldman Sachs, Berkshire Hathaway and P&G, can you really blame the prosecution?
In the P&G case there was no coincidence. I was in Davos, there was this audit committee meeting, I did not call him. Few hours later there was a call from Raj, saying please give me a call back. Several hours later I called him and he updated me that the bank negotiations were not going very well. That was it. But yes, I spoke to him the same day.
You say you did not make money, but you faced insider trading charge?
It is not insider trading. I didn’t make any money. They kept telling lies that I own 15 per cent of Galleon International … they kept telling the jury all the time, which was not true. While they had to prove I owned 15 per cent, they could never prove.
Then how did the charge stick?
That’s the point. It’s about the jury, they get confused. The president of Galleon came and testified that “he (Gupta) doesn’t own the stake” but then they started saying that benefit can be anything, it can even be friendship. Every other person who was convicted in Raj’s case had a quid pro quo and an arrangement that the government could document. How is it that I am the only source who has no arrangement? There is no money transfer, no arrangement.
There is this charge that you were supplying information to get your $10 million back?
It is the most bizarre logic. They were throwing anything, so whatever could stick to the wall. They would confuse the jury that comprised of beauticians, baby sitters, teachers and there was one person who had no clue about business. The judge said that the circumstantial evidence is just as good as direct evidence, it is so biased. I would say that I did not get a fair trial. But now the legal course is done.
What about the Goldman employee who was passing information to Raj?
It’s absolutely bizarre. There is this guy David Loeb, who was the Goldman account manager for Rajaratnam. On the tape is this guy passing information to Rajaratnam and he clearly benefits because its his largest account and he will get more business. So it meets all the criteria of insider trading and yet he was never prosecuted. It’s completely wrong that they did not go after Loeb. Maybe Goldman convinced them, since it was an employee, it would have been another big scandal.
Do you think many around you, including Goldman and McKinsey, betrayed you?
It’s all about self interest. Goldman were buying favours with the US Justice Department, so they went out of their way to not only collaborate but also to twist their testimony. Blankfien wanted to give an impression that the financial results were discussed in the board meeting, which were not. McKinsey got afraid. I was associated with McKinsey for 37 years, I was its leader for nine years. In fact, I called the MD before I was tried and said that I am resigning from the consulting relation. He said “no, don’t worry, take a leave of absence and come back.” But within a few days they got afraid. They didn’t think I stood up to their values. Instead, they kicked me in the face when I was down. I was very hurt by McKinsey. With Goldman, I did not expect anything else, that’s how they are.
Would you say you were at times a bad judge of individuals and situations?
Yes, the judgement failed, no question about it. I think I trust people till they completely disappoint me. There were mistakes in judgement on how things should have been approached.
Was Rajaratnam taking you for granted while you were chasing him for your money?
My only option was to sue him.
But you never did?
I talked to my lawyers. For a long time I couldn’t believe that he could do this. I could not believe that this guy, worth billions, would kind of steal my $10 million. By the time I was ready to sue him, the money was already gone. Also, while he had power to withdraw his equity, he had to inform me also. But he never told me.
What did $10 million mean to you then?
I would say, I could afford to lose it.
Did you have a conversation with him after all this?
We met in the prison. He is an enigma. At the same time, he was offered five years off out of the 11 years for testifying against me. But he said no, and that he had nothing bad to say about me and he doesn’t want to testify against me. I respect him for that.
Since you have written this book now, how would you want to be judged?
It doesn’t matter. In the end, the only person that you have to live with is you yourself, and I am at peace with myself. I don’t have any issues, whatever people think. It was a cathartic experience for me to write it. The other reason I wrote this book is because it thought it would be a very interesting story.