Late one Friday morning, Rajat Gupta was rushing through security at Philadelphia International Airport, carry-on in tow, when his cellphone rang. When Gupta heard from Goldman Sachs, on whose board he sat, it was often from its chief executive, Lloyd Blankfein. But on this morning, it was Gregory K Palm, his old Harvard Business School classmate and the bank's general counsel, on the line. Palm sounded unusually serious. So Gupta asked if he could call him back from the other side of security.
When he did, Palm quickly made two odd disclosures. First, he told Gupta that he had arranged for a colleague to listen in on their conversation. Then he said, "We are representing the corporation, and not you." Palm wanted to make sure that there was no doubt that this was not a privileged conversation. If the matter evolved into something bigger, their discussion could be handed over to law-enforcement officers.
As Gupta listened, Palm stuck to the script that he worked out beforehand. "What can you tell me about Raj Rajaratnam, and have you ever provided him with information about what we do?" he asked.
Of course Gupta knew Raj Rajaratnam, the billionaire head of the Galleon Group hedge fund and No. 236 on the Forbes 400 list. He had worked with him on a number of projects since stepping down from the top job at McKinsey, the consulting giant, in 2003. But Rajaratnam's name had turned radioactive since his arrest, on October 16, 2009, for trading on closely guarded corporate information.
"What are you talking about?" Gupta asked, seemingly taken aback.
Palm explained that Goldman officials had come to believe Gupta may have provided Rajaratnam with crucial information about the firm. Ever cool, Gupta calmly denied that he had given Rajaratnam confidential information about Goldman. Then Gupta said that he and Rajaratnam had indeed been business partners on an investment fund called New Silk Route. Teaming up with Rajaratnam seemed to be his plan for a spectacular career finale - a bid not only to stay vital after stepping down from McKinsey but also to establish himself in the elite circle of billionaires, like the private-equity giant Henry Kravis, that made up his new coterie.
Gupta didn't say all that to Palm, of course. Instead, he explained why it would have been ludicrous for him to give Rajaratnam information: the two had had a falling out over a soured $10-million investment. Gupta told Palm that he had hired accountants and lawyers and was planning to sue his former partner; he would have done so already, he said, were it not for Rajaratnam's arrest. "Why would I help out someone with whom I had a dispute?" he asked rhetorically. He said he was happy to discuss the issue more, but he had to catch a flight to Boston.
Over the course of the day, Palm and Gupta had a number of follow-up conversations. In one, Palm recommended that Gupta get his own lawyer. Gupta eventually retained the renowned defence attorney Gary Naftalis - not out of any real concern, he would later say, but as a precautionary measure. Indeed, Gupta seemed so unconcerned with the call he received that Friday, December 11, 2009, that he never even mentioned it to business associates.
It would take more than a year for them to learn of the depth of Gupta's legal tangles. In March 2011, the SEC charged him in the largest insider trading case in US history. Months later, he was indicted on a charge of giving Rajaratnam, the subject of the investigation, inside information from two of the boards he sat on, Goldman Sachs and Procter & Gamble. Many remained incredulous, but in June 2012, Gupta was found guilty of conspiracy and securities fraud in connection to tips about Goldman - including Warren Buffett's $5-billion investment in the bank during the financial crisis. Phone logs revealed that less than one minute after hanging up from the board call unveiling the Buffett deal, Gupta phoned Rajaratnam, who then bought nearly $35-million worth of Goldman stock. A federal judge called it "the functional equivalent of stabbing Goldman in the back". Gupta was sentenced to two years in prison.
The 64-year-old Gupta, who remains free on appeal, has vigorously maintained his innocence. But even as his appeal is heard this week, the fundamental question behind his case remains a mystery. Why would one of the most revered CEOs of his generation, who retired with a fortune worth some $100 million, show such bad judgement? How could he get into business with a trader who was known for giving Super Bowl parties filled with scantily clad women. The confusion, a management consultant might suggest, may arise from looking at the problem from the wrong angle. What if Gupta, the advisor to presidents and executives, simply got played?
© 2013 The New York Times News Service
