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In my last column on former McKinsey biggie Rajat Gupta, I wondered how a man of Gupta's stature got caught up in the schemes of Galleon's Raj Rajaratnam.
Having just listened to an 18 minute July 2008 taped conversation between Gupta and Rajaratnam, I have a more prosaic question: How come Gupta hasn't yet been criminally charged for his shenanigans?
So far, Gupta's only been charged in a civil suit. But the stuff on this 18 minute recording is pretty damning.
Is it “criminal” activity as defined by the law? I don't know, I'm not a federal prosecutor. But it certainly isn't the kind of material Gupta would be proud to share with the McKinsey Quarterly or the HBS Alumni Bulletin.
The most obvious no-no on the call is that Gupta dishes the dirt on confidential board-privileged M&A discussions with his pal, a hedge fund manager.
How could Gupta not know that Goldman's interest in acquiring Wachovia or AIG constituted “inside” information – as in stuff to be kept “inside” the boardroom or “inside” your mouth?
After all, wasn't Gupta's name synonomous with wisdom and good business judgment? Lots of bigshot institutional boards thought so. Gupta sat on more than two dozen of them: P&G, the International Chamber of Commerce, Harvard Business School, the World Economic Forum and Rockefeller Foundation among them.
Of course, a good defense lawyer will find a hundred reasons why Gupta's Goldman gossip didn't rate as “inside” information. Was any deal imminent? And Gupta himself wasn't trading in Goldman shares, was he?
As Gary Naftalis, Gupta's lawyer, has said, “The SEC's allegations are totally baseless?Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder.”
Impartial reader, ask yourself:
How would Goldman CEO Lloyd Blankfein have reacted if Gupta turned around at the next board meeting and told him, “Geez, Lloyd, I was on the phone with my buddy at Galleon chatting about Wachovia”? That would most assuredly have been Gupta's final board meeting.
Oddly, I don't think Gupta's misuse of his Goldman board position was the ugliest feature of the call. That distinction goes to the way Gupta blithely accepted Rajarantam's shady dealings with Anil Kumar, Gupta's McKinsey protégé.
Here's part of their exchange:
Raj Rajaratnam: Now, from, for the last three or four, I mean four or five years, I've given him a million bucks a year.
Rajat Gupta: Yeah, yeah.
Raj Rajaratnam: After taxes, off shore cash.
Rajat Gupta: Yeah, yeah.
Those Gupta “yeahs” are not “yeah, I'm sort of listening to you, Raj”, those are “yeah, you're right, Raj. That Anil is an ungrateful leech.”
Please listen to the wiretap of the call yourself. The tone of Gupta's voice will tell you much more than simply reading a transcript.
Here was the former Managing Partner of McKinsey acknowledging that Rajaratnam is paying offshore cash to a McKinsey partner, violating McKinsey's internal disclosure and conflict of interest rules, as well as evading U.S. taxes.
A “crime” by Gupta? Probably not. More a sin of omission. But disgraceful? Absolutely.
Which, again begs the question of what was in it for Gupta? Sure, he and Rajaratnam were buddies. But it's also clear from the call that Gupta wanted to piggyback on Rajaratnam's rather ample back to earn some big bucks for himself. Not McKinsey money. But serious money. Rajaratnam money. Kravis-crowd money.
Apparently, Rajaratnam had been talking with Gupta about a senior role in a not-yet-established division of Galleon, Galleon “International.” And it's hard to not conclude that the prospect of joining forces with Rajaratnam excited Gupta.
At one point, he says to Rajaratnam, almost pleading “?you know how I can be helpful in Galleon International. By the way, not Galleon International, Galleon Group…”
Gupta's vocal emphasis is strong and so is the implication – “I want to be part of whatever you're doing Raj.”
This wasn't a man being tricked into joining Rajaratnam's web of conspiracy. Gupta the striver seems only too happy to join.
To those few boards and charities that may be hanging tough and standing by Gupta, take my advice. Listen carefully to the tape — and think again.
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