The former McKinsey chief is accused of passing inside information to Galleon Group's Raj Rajaratnam
Jurors weighing the insider-trading case against Raj Rajaratnam in a Manhattan federal courtroom are hearing plenty about Rajat Gupta, the former head of McKinsey. They've listened to a wiretap on which he confided to Rajaratnam that the Goldman Sachs (GS) board, on which he sat, discussed acquiring Wachovia or American International Group (AIG). They've watched Goldman Sachs Chief Executive Officer Lloyd Blankfein testify that Gupta violated the company's ethics code for directors. Prosecutors have called Gupta, who has not appeared as a witness, an unindicted co-conspirator, and the Securities and Exchange Commission has filed an administrative action against him for his alleged role in the scandal. Still, nothing explains why Gupta, once one of the world's most trusted advisers to companies, would risk his reputation by sharing confidential information with a hedge fund manager.
Gupta, 62, led McKinsey, the global consulting firm, from 1994 to 2003. He sat on the boards of some of the largest multinationals, including Goldman Sachs and Procter & Gamble. He raised millions for charity, hung out with the Prime Minister of India, and attended President Barack Obama's first state dinner at the White House. He divided his time between a waterfront home in Westport, Conn., that once belonged to J.C. Penney, a Manhattan apartment, and a Florida getaway.
Yet Gupta had grander ambitions. After stepping down from the top job at McKinsey, he pursued a second career as a dealmaker. The man CEOs turned to for his expertise and sound judgment made questionable decisions as he invested with Rajaratnam, the co-founder of the hedge fund Galleon Group. The SEC has accused him of passing confidential information on earnings at P&G and Goldman Sachs, and Warren Buffett's $5 billion investment in Goldman Sachs. Those tips generated more than $17 million in illicit profits or avoided losses for Galleon, the SEC says. Gupta's lawyer, Gary Naftalis, calls those allegations "totally baseless."
The son of a man who fought for India's independence, Gupta was orphaned as a teenager. He worked his way from lower-middle-class roots in Kolkata to Harvard Business School and joined McKinsey in 1973. His big leap came in 1994 when McKinsey held elections for a new leader. Gupta won over two other candidates, becoming the first non-U.S.-born managing director of the firm. He served for three three-year terms, the maximum under McKinsey's rules.
Gupta remained at McKinsey as a senior partner until 2007. By then, financial markets were booming, and private equity and hedge fund managers were New York's new elite. Many of the CEOs he had counseled were finding positions in this lucrative world. Gupta figured he could leverage his own contacts and add to his wealth, says a senior executive at a company where Gupta was a director until March. He loved gathering Wall Street rumors and analyzing them in his professorial way, the executive says. He liked the idea of doing 8 or 10 deals a year?making introductions among executives and investors, and leaving the math and paperwork to others, says the executive, who didn't want to be named because his conversations with Gupta were private. That's also how Rajaratnam saw him. "Your value-added is not to do cash flows," Rajaratnam told Gupta in a July 2008 wiretapped phone conversation submitted at the trial. "Your value-added is to bring people together, deals together, at the right time to make the call."
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