Rajat Gupta

Rajat Kumar Gupta
Born:	December 2, 1948 Kolkata, India
Charges:	Securities fraud (3 counts), Conspiracy to commit securities fraud
Sentence:	2 years
Facility:	FMC Devens
Status:	Released

Rajat Kumar Gupta (born December 2, 1948) is an Indian-American former business executive who served 19 months in federal prison after being convicted of insider trading for passing confidential information about Goldman Sachs and Procter & Gamble to hedge fund manager Raj Rajaratnam. Gupta, who rose from modest beginnings in India to become the first foreign-born managing director of McKinsey & Company and one of the most respected figures in global business, was convicted in June 2012 of conspiracy and three counts of securities fraud. His conviction stunned the business world, as Gupta had served on the boards of Goldman Sachs, Procter & Gamble, and numerous philanthropic organizations. The case demonstrated that even the most accomplished corporate directors could face criminal consequences for breaching their fiduciary duties, and that the government was willing to pursue insider trading cases built on circumstantial evidence rather than recorded conversations or documents. Gupta was sentenced to two years in prison, an additional year of supervised release, and a $5 million fine, along with a permanent bar from serving as an officer or director of any public company.

Summary

Rajat Gupta's conviction marked the highest-profile case in the government's aggressive campaign against insider trading during the early 2010s. As a former managing director of McKinsey & Company—the world's most prestigious management consulting firm—and a board member at Goldman Sachs during the 2008 financial crisis, Gupta had access to some of the most sensitive corporate information in American business. His decision to share that information with Raj Rajaratnam, who operated the Galleon Group hedge fund, resulted in one of the most dramatic falls from grace in modern corporate history.

The evidence against Gupta was primarily circumstantial. Unlike Rajaratnam, whose insider trading was captured on wiretapped phone conversations, there were no recordings of Gupta passing tips. Instead, prosecutors built their case around the suspicious timing of trades that occurred within minutes of Gupta attending board meetings where material information was discussed. The jury's willingness to convict based on this circumstantial evidence expanded the government's toolkit for prosecuting insider trading cases.

Gupta's fall was particularly dramatic given his life story. He had grown up in relatively modest circumstances in Kolkata, lost both parents as a teenager, and rose through academic excellence and hard work to the pinnacle of global business. His conviction destroyed a reputation built over four decades and ended his service on numerous corporate and philanthropic boards. The $13.9 million penalty imposed by the SEC, combined with his criminal fine and legal fees, represented a substantial financial blow, though Gupta remained wealthy enough to mount an extensive appellate battle.

Background

Early Life and Education

Rajat Kumar Gupta was born on December 2, 1948, in Kolkata, India. His father was a journalist who was active in India's independence movement. Gupta's childhood was marked by tragedy: his mother died when he was 16, and his father died two years later, leaving him to care for his siblings while still a teenager.

Despite these hardships, Gupta excelled academically. He earned a bachelor's degree in mechanical engineering from the Indian Institute of Technology Delhi, one of India's most competitive institutions. He then came to the United States, where he earned an MBA from Harvard Business School, graduating as a Baker Scholar—a distinction given to the top 5% of the class.

Rise at McKinsey & Company

Gupta joined McKinsey & Company in 1973 and spent his entire consulting career at the firm. He rose through the ranks to become the first foreign-born managing director of McKinsey in 1994, a position he held for nine years—the maximum term allowed under firm rules. During his tenure, he oversaw significant growth in McKinsey's global operations and became one of the most influential figures in management consulting.

After stepping down as managing director, Gupta remained a senior partner at McKinsey and transitioned into board service and philanthropy. He joined the boards of Goldman Sachs, Procter & Gamble, American Airlines, and numerous other corporations. He also became deeply involved in philanthropic work, particularly in global health and education, serving on the boards of organizations including the Bill & Melinda Gates Foundation and the Global Fund to Fight AIDS, Tuberculosis and Malaria.

Relationship with Raj Rajaratnam

Gupta developed a business and personal relationship with Raj Rajaratnam, the founder of the Galleon Group hedge fund. Rajaratnam, a Sri Lankan-American, had built Galleon into one of the largest hedge funds in the world. Gupta invested in Galleon funds and collaborated with Rajaratnam on various business ventures, including a fund focused on investments in South Asia.

The relationship between the two men would prove to be Gupta's undoing. Rajaratnam was operating one of the largest insider trading schemes in history, cultivating sources at companies across the economy who would feed him material non-public information in exchange for various forms of compensation. When the FBI began investigating Galleon, wiretaps captured Rajaratnam receiving tips from numerous sources—and the timing of Rajaratnam's trades suggested that Gupta was among them.

Indictment, Prosecution, and Sentencing

The Rajaratnam Investigation

The investigation that would ensnare Gupta began with an examination of trading patterns at the Galleon Group. Using wiretaps—an unusual tool in white-collar cases—the FBI recorded conversations showing that Rajaratnam was receiving inside information about numerous companies. In October 2009, Rajaratnam was arrested and charged with securities fraud. He would ultimately be convicted and sentenced to 11 years in prison, at the time the longest sentence ever imposed for insider trading.

As the investigation expanded, evidence pointed to Gupta as one of Rajaratnam's sources. The most significant incident occurred on September 23, 2008, when Warren Buffett's Berkshire Hathaway agreed to invest $5 billion in Goldman Sachs during the depths of the financial crisis. The Goldman board discussed the investment on a conference call that afternoon. Within minutes of the call ending, Galleon began buying Goldman stock. The trades, made just before the public announcement, generated substantial profits.

SEC Administrative Action

The SEC initially pursued Gupta through an administrative proceeding rather than civil court litigation—an unusual approach for a high-profile case. Gupta challenged this procedure, and the SEC eventually refiled its case in federal court. In October 2011, the SEC formally charged Gupta with insider trading, alleging that he had illegally tipped Rajaratnam about Goldman Sachs and Procter & Gamble.

Criminal Indictment

On October 26, 2011, the same day the SEC filed its charges, federal prosecutors in Manhattan obtained a criminal indictment against Gupta. The indictment charged him with five counts of securities fraud and one count of conspiracy. The charges carried potential penalties of decades in prison.

Trial

Gupta's trial took place in May and June 2012 before Judge Jed Rakoff in federal court in Manhattan. The prosecution presented evidence showing the suspicious timing of Galleon's trades following Goldman board meetings. They played wiretapped phone calls in which Rajaratnam discussed information that appeared to come from someone on Goldman's board. And they presented testimony from Anil Kumar, a former McKinsey partner and Galleon insider who had pleaded guilty and agreed to cooperate.

The defense argued that Gupta had no motive to tip Rajaratnam—he was not paid for the information and had actually lost money on his investments with Galleon. They attacked the circumstantial nature of the evidence and argued that the timing of trades could be explained by factors other than illegal tipping.

Verdict and Sentencing

On June 15, 2012, the jury convicted Gupta of conspiracy and three counts of securities fraud. He was acquitted on two counts of securities fraud. The conviction stunned the business world, where Gupta had been widely respected for decades.

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 sentence was below what federal guidelines would have suggested, reflecting Judge Rakoff's consideration of Gupta's philanthropic work and his otherwise exemplary life. Manhattan U.S. Attorney Preet Bharara stated at sentencing: "Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell."

Prison Experience

Gupta reported to Federal Medical Center Devens, a federal prison in Massachusetts that includes a minimum-security camp, in June 2014 after exhausting his appeals. He served 19 months of his two-year sentence before being released to home confinement in March 2016. He completed the remainder of his sentence under house arrest.

During his incarceration, Gupta reportedly taught classes to fellow inmates and maintained his composure despite the dramatic change in his circumstances. His time at Devens was unremarkable from a security standpoint—the minimum-security camp houses non-violent offenders in relatively relaxed conditions.

Post-Release Career

Since his release, Gupta has maintained a relatively low public profile. The permanent bar on serving as an officer or director of public companies effectively ended his corporate career. He has written a memoir, "Mind Without Fear," in which he maintains his innocence and criticizes the prosecution.

Gupta continues to assert that he never tipped Rajaratnam and that his conviction was based on circumstantial evidence that proved nothing. His appeals were unsuccessful, and the Supreme Court declined to hear his case.

Public Statements and Positions

Gupta has consistently maintained his innocence since his arrest, throughout his trial, and after his conviction. He has argued that the circumstantial evidence against him was insufficient to prove guilt beyond a reasonable doubt and that his conviction was a miscarriage of justice.

In his memoir and public statements, Gupta has suggested that prosecutors were overzealous in pursuing insider trading cases during this period and that innocent people were caught up in the government's aggressive enforcement campaign. He has not acknowledged any wrongdoing or expressed remorse for his conduct.

Terminology

• Insider Trading: Buying or selling securities based on material, non-public information in violation of a duty to keep that information confidential.

• Tipping: Passing material, non-public information to someone who trades on it; the tipper can be liable even if they do not trade themselves.

• Wiretap: Electronic surveillance of telephone communications, authorized by court order.

• Securities Fraud: Criminal deception in connection with the purchase or sale of securities.

See also

• Martha Stewart
• Jeff Skilling

Frequently Asked Questions

Q: What was Rajat Gupta convicted of?

Rajat Gupta, former McKinsey managing director and Goldman Sachs board member, was convicted of insider trading for leaking confidential boardroom information to hedge fund manager Raj Rajaratnam.

Q: How long was Rajat Gupta's sentence?

Gupta was sentenced to 2 years in federal prison and fined $5 million for his insider trading conviction.

Q: What information did Rajat Gupta leak?

Gupta leaked confidential information about Goldman Sachs, including news of Warren Buffett's $5 billion investment in Goldman during the 2008 financial crisis.

Q: Where did Rajat Gupta serve his sentence?

Gupta served his sentence at Federal Medical Center Devens in Massachusetts.

Q: Who was Raj Rajaratnam?

Raj Rajaratnam was the founder of the Galleon Group hedge fund who was convicted of insider trading, receiving an 11-year sentence for trading on tips from Gupta and others.