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Photo illo: Ed Johnson
When Rajat Gupta was sentenced to two years in prison last Wednesday, the government finally nailed to the wall the largest scalp it has taken to date in its multiyear investigation of rampant insider trading on Wall Street. He wasn’t the richest—that would be erstwhile hedge fund manager Raj Rajaratnam, the man to whom Mr. Gupta was convicted of passing confidential information he learned while serving on the boards of Goldman Sachs and Procter & Gamble. But he’s certainly the highest-profile person to be convicted of such charges since everybody’s favorite reprobate homemaker, Martha Stewart. Like Ms. Stewart, Mr. Gupta got off easy—two years instead of the eight to 10 that the government had asked for. But that’s the way the world works, people. Get used to it.
Mr. Gupta plans to appeal, of course. Which is one reason why his statement before U.S. District Judge Jed Rakoff was so predictably aggravating: he expressed remorse—albeit only for the effect the trial has had on those close to him—and declined to make any admission of guilt. It was the classic, “I’m sorry if what I said offended you,” non-apology apology. No matter. Like my longtime nemesis Conrad Black—the disgraced former newspaper mogul who served two years for fraud yet still feels compelled to absurdly proclaim his innocence every chance he gets—no one really gives a damn, or believes a word he says. They both broke the law and were convicted for their crimes. Period.
There is a legal wrinkle that might get Mr. Gupta off somewhere down the road, in what will surely be a lengthy appeals process: the fact that he didn’t seem to benefit financially from his insider dealings. But again, that’s one for the lawyers to argue about. In the court of public opinion, the man is a criminal. Case closed. In this non-lawyer’s humble opinion, his failure to profit doesn’t make him innocent—it just makes him stupid in addition to being unscrupulous. I wonder what it must feel like to be one of the only people to get punished for committing a financial crime in recent years. For a man who has spent his life as part of the global elite, now to be seen as nothing but a common criminal must be a profoundly humbling experience. That’s the thing about prominent people committing common crimes; strip away their expensive lawyers and their bluster, and it all just seems so ... pedestrian.
And what a steep fall it has been. Mr. Gupta’s was a singular career—he was one of the most prominent India-born chief executives of a major international concern—McKinsey & Co., which he ran between 1994 and 2003. (He left the building in 2007.) And in subsequent years, he was a giant in the world of philanthropy. But as this whole ordeal has shown, his is actually the same story we’ve heard a million times before. In fact, the broad strokes of Mr. Gupta’s case are eerily familiar in more ways than one.
The Conrad Black Effect
The loquacious Mr. Black was convicted of defrauding the shareholders of Hollinger International, a company over which he had almost absolute control. If all he needed was a few extra bucks, the man could have just given himself a raise. Instead, like an idiot, he chose to break the law. But stupidity is no defense for wrongdoing. Indeed, it is its constant companion. The same goes for Mr. Gupta: While he wisely refrained from emailing his partner in crime, thereby distinguishing himself from an even dumber cohort of modern-day Wall Street criminals, he did phone him literally seconds after telephonic board meetings of Goldman Sachs to spill the beans about confidential earnings reports and other news. What ever happened to the old meeting on a park bench? Don’t these boneheads watch Homeland? You should have just put an “X” in white chalk on the lamppost, Rajat. Maybe next time.
The Reverse Lance Armstrong Effect
In the lead-up to his sentencing, Mr. Gupta’s team somehow convinced his friends in both business and philanthropy to write letters to the court on behalf of the fallen corporate consigliere. He even managed to get Bill Gates to send over a statement of support, although Mr. Gates wisely avoided comment on the case itself and merely pointed out Mr. Gupta’s important work for the Bill & Melinda Gates Foundation. There’s no arguing about the good that Mr. Gupta has done, including being a founder and chairman of the board of The Global Fund to Fight AIDS, Tuberculosis, and Malaria. And we should thank him for that. But it doesn’t change the fact of his crimes.
Lance Armstrong’s defenders pursued a similarly desperate line of argument when the final nail went into that cheater’s inner tube. “Look at all the good he has done!” they said, as if having used his ill-gotten fame and fortune to fight cancer canceled out the bad acts that brought him to prominence. You might be able to convince me to buy that logic if Lance had given all his own money away. But he hasn’t—one recent report estimated his net worth in excess of $125 million. So no, Lance, it doesn’t change the fact that you’re a lifelong cheater and a bullier of your teammates.
If I knock over a bank and give half the money away, does it absolve me of guilt for keeping the other half? Of course not. And while Mr. Gupta surely is, as Judge Rakoff pointed out, an otherwise good guy who did a very bad thing—thus differentiating him from Mr. Armstrong, who seems to have been a very bad guy who went on to do good—the point is the same. You don’t get to stack all your benevolent deeds up on one side of the scales of justice to try to counter the weight of your crimes. It’s a different goddamn scale. Maybe Mr. Armstrong and Mr. Gupta are still getting into heaven for all their good works—you won’t find me blocking their way—but before Mr. Gupta steps through the pearly gates, he has at least got to pass through another set of gates, those protecting a medium security prison in Otisville, N.Y.
The Martha Stewart Effect
During the trial, one popular gripe was that that the government was going after Mr. Gupta because of his high profile. That’s the same gambit that Martha Stewart’s lawyers tried when she got caught with her hand in the insider trading homemade double-chunk macadamia cookie jar. God, that’s a tiresome one. Let’s be honest here—there are different rules for the rich and the poor in this country. But nothing sows the seeds of contempt more than the “You’re just targeting me because I’m so successful” defense. Having spent some time talking to U.S. Attorney Preet Bharara about the Rajaratnam and Gupta cases, I can tell you exactly why he targeted those prosecutions: Because he had the goods on them. The government prefers to bring cases it can win. Mr. Gupta was charged, in other words, not because he was famous, but because through his own illegal actions he handed Mr. Bharara and his team an airtight case.
The Goldman Sachs Effect (a k a The McKinsey Effect)
Defending himself against the criticism that his headlines overpromised, the former editor of Money magazine, Frank Lalli, famously retorted, “What’s a headline? It’s a shouted message down a crowded bar.” The point was that we all know that editors use headlines to grab our attention—that’s why they’re so big—and there was no crime in a little hype. (A long-time Money staple: Retire Rich!) Much of the media has eagerlymentioned Goldman in the headlines of all its Gupta stories because … well, you know. Because that’s the kind of thing that moves product. While I am not usually in the business of making apologies for Goldman, this is one instance in which the bank was unfairly tied to a case it actually had nothing to do with. In fact, in this case, Goldman was a victim. The best part? Mr. Gupta is objecting to Goldman’s bid for reimbursement of the legal fees (and the cost of an internal investigation) it was obliged to cover due to his crimes. What an asshole.
The same goes for McKinsey & Company. While there’s an argument to be made that Mr. Gupta damaged that institution severely when he was running the joint—you can read more about that in my history of the company, The Firm, due out in August—it’s totally wrongheaded to suggest that McKinsey’s reputation ought to suffer for actions he took years after leaving the company. He’d been gone since 2007, after all, and his offenses had nothing whatsoever to do with McKinsey. Alas, the same can’t be said for the misdeeds of Mr. Gupta’s old McKinsey colleague, Anil Kumar, who pleaded guilty in this same investigation. He sold McKinsey client secrets out the back door. You can be sure McKinsey has locked said door and thrown away the key. Point being, while it’s hard to marshal sympathy for either Goldman or McKinsey—quite possibly the two most arrogant and self-satisfied professional services entities on the planet—in this case, we need to give them both a pass.
The Deterrent Effect (a k a Money, Money, Money)
In addition to his jail time, Mr. Gupta was fined $5 million by the court. He’ll appeal that, too. But kudos to Judge Rakoff for bringing the punitive hammer down. Hopefully the fine will put the fear of God into other insider trading punters on Wall Street who have correctly concluded—up until this point, at least—that even if they’re caught, their punishments will be embarrassingly mild. Hit them where it counts—in the pocketbook containing the money they all worship so dearly—and the message might actually be heard. Rajat Gupta is certainly hearing it loud and clear.
editorial@observer.com