Rajat Gupta

Rajat Kumar Gupta
Born:	December 2, 1948 Kolkata, India
Charges:	Securities fraud (3 counts), Conspiracy to commit securities fraud
Sentence:	2 years federal prison, 1 year supervised release, $5 million fine
Facility:	FMC Devens
Status:	Released

Rajat Kumar Gupta (born December 2, 1948) is an Indian-American former business executive. He ran McKinsey & Company for nine years and sat on the board of Goldman Sachs. In June 2012 a federal jury in Manhattan convicted him of one count of conspiracy and three counts of securities fraud. The charges stemmed from confidential boardroom information he passed to hedge-fund manager Raj Rajaratnam, who ran the Galleon Group.

Gupta was the first foreign-born managing director of McKinsey. He held that job from 1994 to 2003. He served on corporate boards at Goldman Sachs, Procter & Gamble, and American Airlines, and on philanthropic boards including the Bill & Melinda Gates Foundation. The government's case centered on a single phone call. In September 2008, seconds after a Goldman board meeting ended, Gupta called Rajaratnam. Galleon then bought Goldman stock minutes before the public learned that Warren Buffett's Berkshire Hathaway would invest $5 billion in the bank.

Judge Jed S. Rakoff sentenced Gupta on October 24, 2012, to two years in federal prison, one year of supervised release, and a $5 million fine. Gupta reported to Federal Medical Center Devens in Massachusetts in June 2014. He served about 19 months and left prison in early 2016. He has denied the charges since his arrest. His 2019 memoir, Mind Without Fear, restates that position.

Career

Gupta was born in Kolkata on December 2, 1948. His father was a journalist. His mother died when he was 16. His father died two years later. Gupta and his siblings were left without parents while he was still a teenager.

He studied mechanical engineering at the Indian Institute of Technology Delhi. He then went to the United States and earned an MBA at Harvard Business School, where he graduated as a Baker Scholar.

Gupta joined McKinsey & Company in 1973. He stayed at the firm for his entire consulting career. In 1994 the partnership elected him managing director, the firm's top job. He was the first person born outside the United States to hold it. He was re-elected twice and served the maximum of three terms, stepping down in 2003.

After leaving the managing director role, Gupta moved into board work and philanthropy. He joined the boards of Goldman Sachs in 2006 and Procter & Gamble. He also served at American Airlines and a number of nonprofits. His philanthropic work focused on global health and education. He sat on the boards of the Bill & Melinda Gates Foundation and the Global Fund to Fight AIDS, Tuberculosis and Malaria.

Gupta knew Raj Rajaratnam through business. Rajaratnam founded Galleon Group and built it into one of the largest hedge funds in the country. Gupta put money into Galleon funds. The two men also worked together on an investment vehicle aimed at South Asia. That relationship became the basis of the case against him.

Insider Trading Case

The case grew out of the Galleon investigation. The FBI used wiretaps, which is rare in white-collar work. The recordings showed Rajaratnam taking inside information from sources across the economy. Rajaratnam was arrested in October 2009. He was later convicted and sentenced to 11 years in prison.

The investigation kept expanding. Trading records pointed to Gupta as one of Rajaratnam's sources. The clearest example came on September 23, 2008. The Goldman board met by phone that afternoon to approve a $5 billion investment from Buffett's Berkshire Hathaway. The market was in the worst stretch of the financial crisis. Gupta was on the call. Within minutes of it ending, Galleon began buying Goldman shares. The trades came in just before the public announcement and turned a quick profit.

Prosecutors also pointed to Procter & Gamble. They said Gupta passed Rajaratnam confidential information about the company's quarterly results while serving on its board.

The SEC moved first through an administrative proceeding rather than a federal lawsuit, which was an unusual route for a case this size. Gupta fought that procedure. The SEC dropped it and refiled in federal court. On October 26, 2011, the agency charged Gupta with insider trading. The same day, federal prosecutors in Manhattan obtained a criminal indictment. It charged five counts of securities fraud and one count of conspiracy.

Unlike the Rajaratnam case, the evidence against Gupta was circumstantial. There was no recording of Gupta handing over a tip. Prosecutors built the case on timing. They lined up the suspicious trades against the board meetings Gupta attended. A guilty verdict on that kind of evidence widened what the government could attempt in future insider-trading prosecutions.

Trial and Sentencing

Gupta's trial ran through May and June 2012 in the Southern District of New York. Judge Jed S. Rakoff presided. The prosecution showed the timing of Galleon's trades after Goldman board meetings. It played wiretapped calls in which Rajaratnam discussed information that seemed to come from inside the Goldman board. And it called Anil Kumar, a former McKinsey partner who had pleaded guilty and agreed to cooperate.

The defense made a motive argument. Gupta was not paid for any tip. He had lost money on his Galleon investments. His lawyers said a man in that position had no reason to break the law, and that the timing of the trades had innocent explanations.

The jury convicted on June 15, 2012. It found Gupta guilty of conspiracy and three counts of securities fraud. It acquitted him on two securities-fraud counts.

On October 24, 2012, Judge Rakoff sentenced Gupta to two years in federal prison, one year of supervised release, and a $5 million fine. The term ran below the federal sentencing guidelines. Rakoff cited Gupta's record of charitable work. Manhattan U.S. Attorney Preet Bharara said in a statement that Gupta "has now exchanged the lofty board room for the prospect of a lowly jail cell."

The SEC pursued a separate financial penalty. In 2013 a court ordered Gupta to pay $13.9 million and barred him permanently from serving as an officer or director of a public company.

Incarceration and Release

Gupta appealed his conviction. The Second Circuit affirmed it. The Supreme Court declined to hear the case. His report date came in June 2014, when he surrendered to Federal Medical Center Devens, a Bureau of Prisons facility in Ayer, Massachusetts, that includes a minimum-security camp.

He served about 19 months. The Bureau of Prisons released him in early 2016 to home confinement at his Manhattan residence. The home-confinement period ended that March.

By his own account, Gupta taught classes to other inmates during his time at Devens. The permanent SEC bar closed off any return to corporate board work. Since his release he has kept a low public profile.

In 2019 Gupta published a memoir, Mind Without Fear. The book covers his childhood in India, his career at McKinsey, and the case. He maintains in it that he never tipped Rajaratnam. He has said he does not remember speaking to Rajaratnam after the September 2008 board meeting and that he never passed along the Buffett news. He has not acknowledged wrongdoing.

Frequently Asked Questions

Q: What was Rajat Gupta convicted of?

A federal jury in Manhattan convicted Gupta on June 15, 2012, of one count of conspiracy and three counts of securities fraud. The charges came from confidential Goldman Sachs board information he passed to hedge-fund manager Raj Rajaratnam of the Galleon Group.

Q: How long was Rajat Gupta's sentence?

Judge Jed S. Rakoff sentenced Gupta on October 24, 2012, to two years in federal prison, one year of supervised release, and a $5 million fine. He served about 19 months.

Q: What information did Rajat Gupta leak?

The central charge involved a September 2008 call to Rajaratnam moments after a Goldman board meeting, before the public learned that Warren Buffett's Berkshire Hathaway would invest $5 billion in the bank. Prosecutors also charged him with passing confidential Procter & Gamble results.

Q: Where did Rajat Gupta serve his sentence?

Gupta served his time at Federal Medical Center Devens in Ayer, Massachusetts, which includes a minimum-security camp. He surrendered in June 2014.

Q: When was Rajat Gupta released?

The Bureau of Prisons released Gupta to home confinement in early 2016. The home-confinement period ended in March 2016.

Q: Does Rajat Gupta admit guilt?

No. Gupta has denied the charges since his arrest. His 2019 memoir, Mind Without Fear, restates his claim of innocence. He has not acknowledged wrongdoing.

Q: Who was Raj Rajaratnam?

Raj Rajaratnam founded the Galleon Group hedge fund. He was convicted of insider trading in 2011 and sentenced to 11 years in prison, the longest insider-trading sentence at the time. Gupta was identified as one of his sources.