Indian-American businessman Rajat Gupta who spent 2 years in jail after being convicted of insider trading pleads his innocence in a newly published book, but is ready to move on
During his time in prison, Rajat Gupta says he interviewed 40 prisoners on their life story, how they got into trouble etc. His future plans include doing some work on the criminal justice system in the US. Pic/Nishad Alam
Rajat Gupta, former McKinsey Chief and board member of corporations like Procter & Gamble and Goldman Sachs was the toast of New York's corporate elite. He was also at the centre of one of the biggest insider trading cases in history. Charges on which he was indicted revolve around his phone calls to hedge fund manager and Sri Lankan-American billionaire Raj Rajaratnam, revealing insider information about Berkshire Hathaway's 5 billion dollar investment in Goldman Sachs and Goldman's impending losses. Having served his time in prison, Gupta continues to maintain he's innocent. He didn't testify during his trial but has now written a book, Mind Without Fear (published by Juggernaut), that tells his side of the story. Edited excerpts from an interview.
In January, this year, the appeal you had pending before the Supreme Court based on the Newman case was denied. Why? Is there a legal way forward now?
The Newman case had to do with the fact that there had to be a quid pro quo and a benefit. They turned down the appeal on the basis that, if I had this argument available to me on my first appeal then why didn't I present it then. They also said they didn't find anything wrong in the way the trial was conducted. The jury instructions. We had appealed against that. So basically they didn't substantively look into the case. It was more procedural. But it took them over two years to write the opinion, from 2016 to now. So it was a bit strange.
As far as the legal path ahead is concerned, it's over now.
How did you come to be associated with Raj Rajaratnam?
Firstly, he had a great reputation at the time I had gotten associated with him. I also checked out with Hank Paulson (Former Secretary of the US Treasury) who was a good friend and Gary Cohn who was president of Goldman Sachs before I got into this Voyager business with him (Rajaratnam) and they came up with very high marks, not just for his success but also evaluating him as a person. But also he was a generous donor to the Indian School of Business. And I felt this was a school in India and this was a guy from Sri Lanka and he was being very generous.
So I thought he was a good person, very talented in his field and came with high references. So I didn't think twice about giving him money to invest. That's what that was about. I generally trust lots of people so I wasn't looking at it critically and doing due diligence on him.
How do you process the past few years?
My father used to say that you can't always control what happens to you but you can control how to react to it. One of the things I wanted to do was react to it with generosity of spirit, grace, forgiveness, lack of anger or rancour or bitterness. Largely I've been able to do that. I also think life is a series of experiences. Nothing is good or bad. It's what you make of it. I went to prison and resolved that going to prison I would want to come out of it stronger in every way: physically in better shape, mentally, emotionally, spiritually… and I believe I was largely able to achieve that. Even though it was hard at times, by and large it was fine even in solitary confinement. From these last six years, there are obviously a lot of regrets. I regret that I couldn't continue on my journey of doing a lot of philanthropic things, creating institutions… I was on the verge of creating an institution for urban development in India which I could not complete. So I feel very badly that this thing took away six-seven years of my life and I couldn't do the things that were near and dear to my heart.
But of the good that has come out of it, this book itself is one of the things. I wrote it because I felt it was an interesting story. I've gone through a lot. If you read it I hope that you'll be able to relate to some pieces of it. In your own life, your own career. You'll be able to see how I reacted to things, think of how you would react to them, learn some lessons from it and so on… so the idea is very much to say: "I've gone through this. Let me narrate how I felt, how I made decisions- some good, some bad." And articulate a life philosophy. And hopefully that'll be beneficial to some readers. I also wanted to write an interesting story. If you take my name away from the cover, just say it's a fictional story, it should be an interesting story to read.
Do you see your book as a comeback vehicle, or a means of preserving your legacy?
Neither. As I said, first and foremost, I see it as a way of writing an interesting story. I hope people can learn lessons from it. But another way I see it is as the closing of a chapter in my life. It was difficult to write, a cathartic experience. I've gone through the legal process from 2011 to now 2019. That's eight years. Now I've published this book. I'm going to spend the next few months doing interviews, talking about the book and so on. And it'll be over. In some sense it's a closure.
What are your future plans?
I'm in relatively good health. I have a lot of energy. My mind still works well. So I'm not one to sit around at home. I'm connected with the institutions I founded. I advise them. I mentor a lot of people. I started doing some work in public health — maternal and child health — in Gujarat, which has been going on now for a year and will grow. And I've started doing some work on the criminal justice system in the US, prison reform. I've started engaging with an organisation called The Marshall Project. It's started by journalists and it is to put the spotlight on issues related to the criminal justice system. Every aspect of it, prison, bails, court system, appeals… And they write stories about injustices that happen. They've asked me to do some writing based on my own experiences which I'll do and I'll try to help them in other ways. There are two other organizations. One is called Rise-N-Step. It's a membership organization with prisoners and their families. It's for their welfare and tries to figure out how they can reintegrate into society and become useful, productive members of society. It's started by a guy named Manny who I write about in the book. He and I are working together for that organization. Then there's a guy named Greg Earls. He and I have been thinking of something called Bold Start which is really a life coaching thing for halfway houses. Once you come out of prison you go to a halfway house.
And I hope to do something completely different. I don't know what it will be. But maybe something interesting.
Once the charges came up you recused yourself from positions with different institutions. What is the nature of your involvement with these institutions now?
There were institutions I had a strong role in founding, such as ISB (International School of Business), PHFI (Public Health Foundation of India) and AIF (American India Foundation). They are in a way like my babies. Even today. A short while ago I met with the Dean of ISB and we exchanged ideas on what strategies he was following. He keeps me abreast. So I'm a sort of informal advisor to him. I also visit the campus and speak to the students from time to time. For PHFI, I talk a lot with Srinath Reddy who is the head of it. Right now, Mr Ramadorai has taken over as chairman. Srinath, Mr Ramadorai and I had a meeting where we were discussing the issues facing PHFI and how we were trying to get the Hyderabad Institute of PHFI formed. I'm working with the Gandhinagar institutions in my projects.
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I have decided I don't want to get on boards and so on. Formal positions don't matter. There were other institutions where I was involved more formally and I had finished my term. For example, I was a founding Global Fund member, then I became chairman and then completed my term. But I still have a large group of friends who are involved in it. There are many organizations like that. There are multilateral institutions like the UN which I was very involved with when Kofi Annan was there. I am not involved with it anymore. I was involved with foundations, like the Rockefeller Foundation. I was chairman of the advisory board at the (Bill & Melinda) Gates Foundation.
The Gates Foundation is an interesting case in point. I am attracted to the idea of going to Bill Gates and saying, "Look, I have my time available. What would you like me to work on." It would be interesting. But I know that if I do that I want to do that with clarity that I want to and can spend half my time. He's a very demanding person and rightly so. And I want to give it my best.
I also help in institution building in different places. I was in Nigeria earlier this year at the invitation of the Minister of Industry there who wanted to start a Nigerian university of technology and management. It would be a combination of IIT and ISB in a way. I've been helping and advising him for the last year on how to think about it. This was an inaugural event where they invited all the industrialists. The ministers and the Vice President came to start it off. I do things like that, which use my experience and skills to help other people. Most of it is philanthropic and pro-bono.
What are the key learnings from your career at McKinsey. You talk in your book about growing the Scandinavia office being a turning point in your career in the 1980s. Let's treat that as a case study.
That was an interesting leadership experiment. On the office leadership I wanted a collaborative style and a team-oriented approach. We were a small office with three partners. With these and the next level — project managers and engagement managers — there were probably about 15 of us. We would sit around in a room and talk about every client frankly and honestly. Not divulging any confidential information, but on the state of our relationships and problems, and everybody would collectively own it. We would spend the whole day discussing clients and potential clients. That had never happened before. It was extremely beneficial because everybody collectively owned the issues and helped each other make progress with particular clients.
Also, my colleagues were masters at client introduction and what they communicated to me was how they thought about the networks and how to influence that and take initiative and be patient and so on. I practised that myself and became a very good client introducer.
The third lesson was in some ways to make the people very successful. When people come into the window of partner elections. How to support them and make sure that their successes is recognized, giving them credit where due, mentoring them, providing them a safety net if something went wrong… that was a commitment to the people.
In addition to this we discussed a preemptive strategy for the office. We were the only consulting firm in Scandinavia at that time. It was a special kind of economy because it was homogenous but it had global companies like Ericsson. The best way to maintain our position would be to preempt both the supply and demand side. Whenever there was a request for a proposal we would put in enormous resources to capture the client's resources around the firm. We also hired every talent in Scandinavia that was coming out of the business schools. So what happened was that our competition couldn't really establish an office there for nearly 10 years.
The thing that is quite important in a place like McKinsey is that you lead from behind. You have a servant-leader model. Because it's a partnership and your job as Managing Partner is to read what the partnership wants and help them achieve it, not so much to say, "I know all the answers. Follow me." That's not the culture and not the right thing to do. I spent a lot of time with my partners on what their aspirations were, what problems they were having and how one could make them successful. You have to show that you care about them and actually care a lot about their success.
The other thing is that it's a client service firm so you have to serve clients. I think I was the first Managing Partner who did not stop serving clients even after I got elected. We made it the value that client service was absolutely important and people must focus on that. All this internal administrative stuff is not what makes you successful.
Also, it was very important to establish a global footprint in my time because our clients had become very global so we had to be at least as global as our clients, perhaps more. So, during my time we opened lots of offices all around the world.
But people questioned whether such an aggressive expansion would undermine the core values of McKinsey and the quality of service…
If the aspiration of McKinsey was to serve the leading institutions of the world and serve them on their most important issues there was no choice. The leading institutions were, by and large going global. It's like serving GE and saying, "We can't do anything for you in China." It was a globalised world and we wanted to be at the forefront of it.
Secondly, when I joined the firm in 1973, the first few assignments I did, many of them were mundane issues. Today, we wouldn't deal with those kinds of issues at all. So we had to develop our skill levels in different areas than we had, and the problems we worked on were truly top management problems. To say that we had high quality historically is a romantic view of history. The firm did not have the kind of impact in the seventies and eighties that we had in the nineties and 2000s and continue to do now. The firm is much more capable and working with institutions that are world leaders.
If we hadn't grown and built those capabilities… I started something called the BTO (Business Technology Office). We had never done anything in technology before. If we hadn't had the seeds of that we wouldn't be doing what we are doing now. Growth gives a certain vibrancy. I believed that in people terms we should grow about five to ten percent. And in revenue terms around 15%. That's what we did. I was Managing Partner for nine years. We pretty much doubled or more than doubled in terms of people in that period.
Also, we never acquired any companies anywhere. The India office was opened by people moving here and establishing the practice in the image of what the firm was.
A phone conversation between you and Rajaratnam was played in court where you had confirmed the possibility of Goldman buying a bank. In the consulting business, confidentiality is paramount. So, where does one draw the line of what to reveal or not?
You have to understand the context in which that conversation was played. First, the board meeting I was referring to happened one month before the conversation. Those were times in which everybody was talking to everybody. All the financial institutions were getting into trouble. They were thinking about merging, acquiring etc. and the government was encouraging that so that they don't fail. There would be headlines almost every day. In the strategy discussion at Goldman there was a discussion for potential acquisitions of partners and it covered the whole spectrum. It had Wachovia, and five other banks and... everybody. Lots of possibilities were being discussed and it was all public knowledge. It was in the newspapers every day. "Goldman is having discussions with Wachovia". Or Morgan Stanley or Merrill Lynch is doing this…
The other context which was important was Rajaratnam called me because he was going to have a meeting with Gary Cohn who was the president of Goldman. And the reason Gary Cohn was coming to his office — think about that — was that Raj was one of the biggest clients of Goldman. So he (Rajaratnam) calls me and says, "I'm meeting with Gary Cohn. I want to have a good discussion." And before that he used to always ask me, "Is Goldman going to survive. What's happening?" etc. etc. My view always was, Goldman is the best bank. If the whole system fails who knows what will happen, but Goldman will be the last one to fail. Because he was thinking of moving his prime account to European banks which were more stable. So this was a conversation I was having to help Goldman.
My mistake clearly was I said, "Yes, there was a discussion in the board." I should not have said that. Not that it did any harm. Not that it created any insider trading. There was no insider information, nothing. It was kind of a phrase that I used. And if you listen to the conversation I say, "Ya those banks were being talked about but so were many others. And they're very opportunistic. If they find something interesting they will do it." There was zero commitment to one fact. And there was no trading based on this. But they played it up as if it was a grave act I had committed. I should not have said that phrase.
There is the larger question of what lines should be drawn in such a case.
No. I firmly believe any discussion in the board is confidential. Never disclose it. Never confirm or deny it. Board discussions are board discussions. They should stay in the board.
But McKinsey has been privy to much confidential inside information. Listen, I helped AG Lafley negotiate between Gillette and P&G. It was one of the largest acquisitions ever. I had inside information about what was going to happen and what the price would be. If I had to disclose inside information I could have done that so many times.
You've maintained that all of the evidence against you is circumstantial. How do you explain the timing of the phone calls between you and Raj Rajaratnam? The calls occur right after board conference calls and trades are conducted immediately after...
First, let me address the idea that I would call Rajaratnam right after the board meeting. They played up that it was 16 seconds after, or whatever… Most board members I know, when the board meeting is over, or when there's a break, they go out and make phone calls. So this business of playing up me calling Rajaratnam after 16 seconds is neither here nor there.
Secondly, I didn't call Rajaratnam. I called my secretary. That was clearly established. I had called Rajaratnam in the morning that day to ask for some papers which he was avoiding sending me. And Raj promised me he would send it to me that day. So I called my secretary and asked if Rajaratnam had sent the papers. And she said she hadn't got anything as of yet. So I said, "Get me Raj."
I actually don't even remember if I had in fact spoken to him or not. It was a very short call. The reason I say I don't remember is that two hours later I called him again and left a message to the effect of "I'm trying to catch up with you" or I forget what the exact phrasing is. This message is recorded.
His statement later on is a little vague. He said, "Somebody said something good is going to happen." But the Goldman stock had started going up as soon as soon as the meeting was set, from one o'clock in the afternoon. So I don't know what he was looking at. He could have been looking at the (stock) ticker.
In the call that occurred in October, which was another one cited, you have to understand the context of the board meeting. On that day there was a Wall Street Journal headline that said Goldman is firing 10% of its staff. Now, Lloyd (Blankfein) had not even informed the board that he was going to do this. So he must have panicked and said, "I should have informed the board." So he called a board meeting. And this was all about that. It was all about the firing. I don't recall any discussion of financial results.
Rajaratnam next day says I heard from someone at Goldman that they're going to lose 2 dollars a share. This wasn't even true.
But what the prosecutors did was, they rehearsed Blankfein for hours to go around that problem by saying, "Oh I don't remember whether it was discussed or not but it's generally my practice." I had a long conversation with Rajaratnam after the board meeting. But it had nothing to do with the board meeting. It had to do with recovering funds of Voyager. And I don't remember that conversation but he could have easily said, "I hear Goldman's not doing well." I could have said, "Just like every other bank." Everybody knows banks were not doing well then. It was not a mystery at the time.
How frequent were the calls between you and Rajaratnam at the time?
I would say throughout 2007 there were fairly frequent calls because we were trying to set up NSR (New Silk Route) and originally he was going to be involved in NSR. In 2008 there were calls mostly related to information regarding Voyager. There were many calls. After the summer when I discovered that he had taken out money (from Voyager) the frequency of calls went down a lot. It was about giving me information regarding Voyager and so on. And then, by January (2009) it stopped.
So in the year when these calls in question occurred (2008) the frequency of calls were, you would say, about once in a fortnight?
Something like that. They had all the information. They tapped his phone for, I don't know, 12 or 16 months. Some long period of time. There is not one other conversation that has anything, other than the one they played, which also has nothing to do with insider trading. So, if you think about it they had conversations with everybody else that were recorded, on insider trading. There was not one by me. There were phone calls. I was on six boards. Every board had at least four meetings. So there were 24 board meetings. Every one of those board meetings, there was some insider information that was being discussed. I used to make calls to him relating to other subjects. How is it that out of the thousands of calls recorded there was not a single one from me?
But they didn't record all your calls.
Some of them were recorded but there was not a single one with any inside information or anything close to it.
Anil Kumar's testimony points to you wanting to begin a multi-billion dollar Asian hedge fund capital venture with Rajaratnam in the future. This leads to the argument that while there was no gain for you in the present there was an expectation of future gain.
Anil Kumar knew nothing about the case. He should not have testified because there was no relevant information he had. The government forced him to testify and coached him on what to say.
Firstly, he tried to establish I was great friends with Rajaratnam. I was not. He was a business partner. I never invited him to dinner at my place. He never invited me to dinner at his place. Our families never met. We weren't friends.
The second thing was all discussions about NSR and Raj's participation in it had completely stopped because Raj himself didn't want to do it. We started raising funds in 2007. He initially was going to be a full partner in NSR. He withdrew. We decided we'd do just private equity and whatever he (Rajaratnam) does is his thing.
So, to Anil Kumar's testimony saying that I was going to create a hedge fund with Rajaratnam, I was not.
The calls in question occurred in 2008. You're saying Rajaratnam withdrew from NSR in 2007?
Right. This is disingenuous. Trying to tell the jury something that is non-factual. But it was said in a very clever way. He (Kumar) did a lot of damage without knowing anything about the case.
What insights did prison leave you with?
You meet some fascinating people and one of the lessons you learn is that, while someone may be a convicted criminal, they're human beings at the end of it and they have very different backgrounds but are interesting people and in many ways good people. So many people were helpful to me and I tried to be helpful to all of them. I interviewed 40 prisoners on what their life story was, how they got into trouble, what happened. And I saw the injustices. At least 25% of them, I don't think should have ever been there.
These are people — most of them — I would have never met or come across. I have a great deal of respect for many of them. What they endured. How resilient their spirit is. And so on. That was one great insight.
The other was how difficult it is for people with long sentences. Not only the life in prison but the life outside. Some people don't even have the money for their families to come and visit.
What helped you deal with the worst of prison?
They weren't allowing me to take the Gita into solitary confinement but I then convinced them that this was my Bible and you can't take it away. I had read different pieces from the Gita but this was a chance to read it cover to cover, several times. It put a lot of things in context.
If you think about the everlasting nature of your soul, all the events around you are kind of put into context. What does it matter what you're going through? The notion of trying your best and not worrying about the result, the notion of detachment, is a liberating idea. I put it in the context of my having resigned from all these boards and everything. I've detached myself from that.
It was kind of a time of reflection, applying what I had gone through and putting everything in context.
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