It is likely that Rajat Gupta too, like the media, could have overlooked few telling signs and warning before it was too late for him
By Francis Adams
A section of the media, both in
India and the United States described how Rajat Gupta’s conviction in the
insider trading trial has shook the business world in these countries – the
largest and the oldest democracies in the world. Another section highlighted
the case as the battle between two Indian giants, prompting www.Time.com to headline a story “Desi vs.
Desi: India’s Press on How Preet Bharara Got Rajat Gupta.” (See: http://ti.me/L5UyHr ).
The Task Force’s web site www.stopfraud.gov boldly explains itself as the broadest coalition of law enforcement, investigatory and regulatory agencies, comprising more than 20 Federal agencies, 94 US Attorney’s Offices and state and local partners brought together to combat fraud.
Preet Bharara, the U.S. Attorney for the Southern District of New York and handpicked by Obama, figures prominently on the Task Force Leadership’s list as co-chair of The Securities and Commodities Fraud Working Group. The intensely secretive and formidable nature of this task force makes the fact more obvious that even if Gupta claimed the Clintons to be his close friends, his proximity to the Secretary of State Hillary Clinton would not have yielded him any reprieve or an “insider information” to help him cover up his tracks before his trial began.
The Good vs The Good
Gupta’s legion of well-wishers, most of them from India, made spirited attempts to garner support for their hero -- the first Indian American to occupy a chairman’s chair in a global company and Corporate America – through www.friendsofrajat.com that bears testimonials of friends, including billionaire Mukesh Ambani, the chairman and managing director of Reliance Industries limited and Adi Godrej, chairman of the Godrej Group. The site has a vertical providing information on Gupta and legal briefs from the case from the defendant’s perspective.
Gupta’s lawyers also produced six character witnesses that included his daughter, a professor at Harvard who testified on the former McKinsey head’s good deeds.
All these attempts were unfortunately scuppered when the judge maintained that a person dishonest in many ways could still be interested in giving to charity. On his part, Bharara said, “Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief. It bears repeating that, in coordination with our extraordinary partners at the FBI, we will continue to pursue those who violate the securities laws, regardless of status, wealth, or influence. I thank the members of the jury for their time, attention, and service, and the dedicated career prosecutors from my office who so ably tried this case.”
Both, the judge and Bharara were obviously working for the good of the citizens, investors and the government of the United States.
The case of the Ss
How could a man of Gupta's stature get tangled in a web like this? He ought to have known what constituted non-public information when it came to trading of valuable stocks on the NYSE. Here was a gentleman who eschewed virtues of good corporate governance, having steered the McKinsey ship for more than a decade.
Fellow Mckinsey-ite and famed management guru Tom Peters has quoted Gupta in one of his articles titled “A Brief History of the 7-S (McKinsey 7-S) Model” on his web site www.tompeters.com, detailing how Gupta, while speaking at a seminar in Dubai in 2008, reproduced and stressed the importance of the 7-S framework, 28 years after Peters and two associates had written the article for Business Horizons. (See: http://bit.ly/Mz7rrl ).
According to the article, Subordinate Goals meaning “of higher order" and the last among the seven Ss -- the others are Strategy, Systems, Structure, Skills, Style, Staff – is a guiding concept that, with its values and aspirations, goes beyond written conventional formal statement of corporate objectives. “Subordinate Goals are the fundamental ideas around which a business is built. They are its main values. But they are more as well. They are the broad notions of future direction that the top management wants to infuse throughout the organization,” the article says. (See: http://bit.ly/MH3i0T ).
It was probably around this time in 2008 that Gupta developed a bond with Rajaratnam, now labeled as “a snake in the grass” by members of the jury who voted in Gupta’s case. Had Gupta taken a cue from the effectiveness of the 7-S framework that he disseminated to the business community worldwide, he would have very likely avoided this pitfall.
Or better still, had he in his role as a member of the Board of Directors at Goldman Sachs who had access to realms of documents and presentations on the development at the Securities and Exchange Commission, laid his hands on the Directors Roundtable document prepared by Morrison Foerster in November, 2009, he could have succeeded in making amends and avert this grave disaster.
This presentation titled “The “New” SEC: What Does It Mean to You?” has very relevant and eye-opening declarations. It talks about increase in SEC cases in 2008, backed by an explicit graphic image on the investigations opened and cases filed; the SEC being under pressure in 2009; and tough talk by the new leadership under SEC Chairman Mary Schapiro and Head of Enforcement Robert Khuzami, who is among the Task Force group headed by Bharara, as the Director of Enforcement for the Securities and Exchange Commission.
Khuzami has been quoted in this presentation making a telling remark: “As head of the SEC’s Division of Enforcement, the staff and I will relentlessly pursue and bring to justice those whose misconduct infects our markets, corrodes investor confidence and has caused so much financial suffering.”
Another statement from him says that the Task Force will improve their chances of identifying wrongdoers and thus restoring confidence in the markets.
Clearly, head honchos from Corporate America, including Gupta, must have been aware of such developments and public statements made by authority figures from the SEC and, thus, firmed up and kept their books and telephonic interactions squeaky clean.
While Gupta and Peters enjoyed sharing the McKinsey 7-S framework with the business community in Dubai, the SEC had also created an equally alliterative framework – Swift, Smart, Strategic, Successful.
Needless to say, the SEC managed to put into practice all its Ss methodically in eventually nailing Gupta, Rajaratnam and their third convicted partner Anil Kumar.
There are, and could have been several such pointers, in documents and presentations, warning corporate heads to smarten up. One such document, titled “The Importance of Having and Following a Strong Public Company Insider Trading Policy” was published in Business Law Today’s October 2011 edition by the American Bar Association. (See page 4: http://bit.ly/KcQX4h – sourced from Google Scholar ).
On page 13 of this document, an article titled "Insider Trading: Ambiguous Statute as Warning" by Bloomberg Finance L.P. and published in 2011 takes several digs at the law on Insider Trading. It is likely that Gupta's lawyers were not aware of this article while fighting his case.
The Financial Fraud Public Service Announcement video, posted below, featuring Michael Douglas might have come a little late to alert Gupta about any misstep, even unintentionally. The video shows Douglas as the financial executive in the movie "Wall Street" followed by an appeal by him exhorting people to report securities fraud, including information on insider trading, to their local FBI Field Office or online at http://www.fbi.gov.
Is it likely that Gupta may have overlooked all of the other signs? Maybe. Or, could it
be that deep inside, he always wanted and yearned for freedom in his
professional dealings? Read excerpts from “A Case For Corporate Freedom”
written by Gupta in 1998 to get an insight. (See: http://bit.ly/MhUKiV – sourced from Google Scholar).
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