Mind Without Fear

by Rajat Gupta

  By the time the tape was played in the courtroom, of course, everyone knew that that payment was for providing insider tips. So naturally, hearing the tape, they assumed I’d known about, and condoned, this illegal arrangement. My response to Raj must have confirmed this: “I know, you’re being … I think you’re very generous.”

  When I listened back to the tape, I could hear in my voice that I wasn’t fully taking in what Raj had said, or taking it literally. Quite frankly, I was tired of their complaining about each other. Besides, Rajaratnam was a generous man, so it would not have been out of character for him to simply gift large sums to a friend nor to exaggerate the size of those sums to make a point about that friend’s ingratitude. In fact, Raj had been generous with Anil in many ways, giving Anil’s disabled son, Aman, a job and a place to stay. He also could have been paying Anil quite legitimately for advice: McKinsey had no explicit rule against partners advising friends or family unless there was a conflict of interest that would take away work that the firm might otherwise do. Whatever the case, I just didn’t want to get into this with Raj—it was their business, not mine. Never for a moment did it occur to me that he was paying Anil for illegal information.

  Of course, no one else listening to that tape would have known these things, and to this day, people find it hard to believe that I could have heard his words and not reported it to the firm. Based on that one conversation—taken completely out of context and now colored by what they knew about the insider trading scheme—perhaps it was understandable that people assumed the worst: that I turned a blind eye to Raj’s secret arrangement with Anil. Nothing could have been further from the truth.

  Excommunicated

  McKinsey. My first thought when I heard this section of the tape was how terrible this would look to the firm, and how betrayed they would feel. I’d assured them I’d known nothing of Anil’s arrangement, which was true, but this tape made it seem otherwise. And I’d given them no warning that this public spectacle with their name all over it was about to get worse, because I hadn’t known about it myself. That was the hardest part for me to bear—that it was too late for me to soften the blow.

  Had I been given any heads-up about this part of the tape, I’d have called up Dominic Barton and explained. The firm would not have been happy, but at least they would have been prepared. Instead, they heard about it on the news. They were completely surprised, and I looked like a liar. In a cruel stroke of fate, the day the tape was played happened to be in the middle of the annual partners’ conference—an event I’d proudly presided over for many years. Everyone heard it, all at once. I was tormented with visions of my friends and former colleagues listening to that recording, discussing it, and assuming I had condoned Rajaratnam’s illegal financial arrangement with Kumar and had blatantly lied to them all.

  Infuriatingly, all the lawyers seemed to have missed the potential consequences of that part of the tape. They’d been focused on what seemed like the more problematic part of the conversation—the discussion related to the Goldman board meeting—but neglected to even tell me about the part that was much more damaging for me personally. They didn’t seem to realize that it would have made an enormous difference for me had I been able to warn McKinsey.

  Naturally, the leaders of the firm were outraged. I was sitting in the waiting room at my doctor’s office shortly thereafter when I got a call from Ian Davis, a long-time colleague who had succeeded me as head of the firm. I was glad he was the one who had called—we went back a long way, and I had stood by him during difficult times in his own career, eventually making him head of my governance task force, a success that set him up to be chosen as the firm’s leader.

  I apologized that I had only a few minutes before my appointment. “Don’t worry,” Ian said, “Vik and I will call you back.” Vik Malhotra was head of the New York office. Ian also said that the professional standards committee would be conducting an investigation and I’d get a chance to speak about it all to them and to the shareholders’ committee. But neither of those calls ever came. I never had a chance to tell my side of the story.

  Instead, with very little warning, I was asked to vacate my office. My secretary Renee, my support system, and the role I’d valued so deeply were all taken away. I was asked to stop using my McKinsey email address—a small thing, but symbolic nonetheless. It was the only email address I’d ever had, because in my entire career, I’d never worked anywhere else. It was disorienting and deeply painful, but felt there was nothing I could really do, besides request that the firm ensure Renee was taken care of. She’d been invaluable to me and I hated to think my troubles would cause her hardship.

  The firm I’d served for thirty-seven years turned its back on me and I was essentially excommunicated. At this point, I had only been accused, and on the flimsiest of circumstantial evidence. They never gave me a fair hearing. This shocked me—it was so uncharacteristic of the principled firm I’d always so deeply respected and antithetical to the partnership values that were supposed to be the firm’s bedrock. I felt enormous gratitude toward McKinsey for having nurtured my career, but I also felt the firm to which I’d given my whole professional life owed me, at the very least, respect and due process. In their eyes, more than anyone’s, I should have been innocent until proven guilty.

  At home, Anita was sympathetic, but I could tell she was not as shocked as I was at the behavior of my former partners. She’d always told me I tended to romanticize the firm, and perhaps she was right. I genuinely believed in the values of the partnership, the fairness of the firm and its loyalty to its people. I understood their outrage, and I’d have been the first to encourage the leaders to appropriately distance themselves from the case. They could have made clear to their clients and the general public that no McKinsey companies were involved in the charges and that I was taking a leave of absence until the legal process was complete. That would have been enough to protect the firm. It was not necessary to erase me entirely, to kick me when I was down and in need of support. Later, I would discover that my name had even been removed from the alumni directory. How could I cease to be an alumnus after spending thirty-seven years there and leading the firm for nine?

  The painful injustice of all this was only amplified by the fact that, as my lawyers reminded me, the tape had no direct relevance to the case being tried. The conversation contained no actual “material nonpublic information” and led to no trades. My comments were inappropriate, but not illegal. Why was it given so much attention, when the government had so many other much more incriminating recordings of Rajaratnam—recordings in which he gave and received actual tips? If they wanted to prove a conspiracy, they already had damning evidence in the testimony of former Galleon trader Adam Smith, who offered detailed descriptions of obtaining and passing on to his boss information about several companies. As the judge himself pointed out, “A reasonable jury could have found Rajaratnam guilty as to Count One [conspiracy] on the basis of Smith’s testimony alone.”2 I can only conclude that highlighting the tape served a larger story that the Justice Department wanted to construct about me.

  The focus on Goldman and on myself did not stop with the playing of the tape. The prosecutor’s focus then turned to the Berkshire Hathaway deal, highlighting the fact that I’d called Rajaratnam shortly after the board meeting in which the deal was announced, and playing the wiretapped conversation between Raj and one of his traders from the following day, in which he mentioned receiving a call just before the markets closed and hearing that “something good might happen to Goldman.” By the time the Times pointed out my central role in the trial, six weeks in, it had indeed grown to elephantine proportions.

  I didn’t know what to think at this point. I was starting to second-guess every decision I’d made and all the advice I’d been given. Should I have made a deal with the SEC the moment we’d first heard about the investigation? Perhaps I could have settled for a small fine while not agreeing to any wrongdoing. But I knew that even i
f my lawyers had suggested this, I would probably not have agreed—to me, any deal would have amounted to an admission of guilt. Had it been a mistake to take the Fifth? Should I have spoken to the SEC at the hearing? I still believed that if I just had the chance to tell my side of the story, it would become clear that I’d done nothing wrong. Looking back, I was naive, to say the least.

  Tried In Abstentia

  I don’t believe it was an accident that I took center stage at Rajaratnam’s trial. In fact, the series of events leading up to it left me fairly certain that it was part of a deliberate campaign on the part of the Justice Department to try me and find me guilty in the court of public opinion. Preet Bharara, the ambitious US Attorney for the Southern District of New York, was itching to charge me—I could feel it. I wasn’t a banker, but I was of sufficient stature that maybe the public wouldn’t notice the mismatch. However, with only the thinnest circumstantial case against me, he needed to ensure that the jury pool was primed to judge me harshly.

  One question to which I—and many others—have given a great deal of thought is this: Why did the SEC scramble to file charges against me just days before the Rajaratnam trial, allowing no time to review my detailed response to the Wells Notice? I’ve reflected on this question at great length, as did the press and anyone else observing the case. Writing in the New York Times, the financial journalist Andrew Ross Sorkin commented, “there is something curious about the accusations against Mr. Gupta, which came just days before Mr. Rajaratnam’s criminal trial …. Given the seriousness of the claims—insider trading by an executive who had reached the upper echelons of corporate America—why not bring criminal charges against Mr. Gupta?” However, he noted that the evidence, such as it was, seemed barely enough to warrant even the civil charges, with the SEC only claiming that it was “very likely” I had spoken to Raj on the days in question. “Since when has ‘very likely’ been considered enough to make a civil allegation?”3

  Personally, I felt that this smacked of a collaboration of sorts between the Justice Department and the SEC. Surely, Bharara knew he didn’t have enough evidence to press criminal charges, but the SEC charge was an “administrative” one, which carried a much lower standard of evidence than the federal court. Perhaps getting the SEC to charge me was another step in the PR campaign to set the stage for him to do so when the time was right. These charges would solidify the image of my guilt that had been planted in the public mind by the leaked article, and give the US Attorney’s Office (USAO) more time to build a case.

  I’ll likely never know if my theory is true, but it seems consistent with Bharara’s playbook. An ambitious Indian immigrant who had moved to the US with his parents at the age of two, Bharara took office in 2009. I had personally never met him, but as I struggled to come to grips with the invisible chess game, I quickly realized that this was someone I needed to understand. When I began to read up on his tenure as US Attorney and the tactics he employed to succeed, much of my own experience began to make more sense.

  Bharara’s appointment had initially inspired high hopes that he would aggressively pursue charges against the banking executives responsible for the financial crisis. No such charges were forthcoming, however, and soon he became the target of pointed criticisms in the press. The public was angry, and rightly so. The bankers seemed impervious to prosecution, the banks were getting government bailouts, and ordinary, hard-working people were losing their homes. Bharara must have needed a new story. If going after the big banking executives was too difficult, he needed another way to appease the public’s desire for convictions. Hedge funds were an ideal target—the “next best crooks,” as New York magazine put it.4 They carried the aura of Wall Street greed and excess, but were not enmeshed in the global financial markets or in politics the way the big banks were. They also lacked the political muscle to defend themselves. It was a shrewd strategy: by cracking down on insider trading and aggressively prosecuting hedge fund managers and their informants, Bharara could appear to be taking a hard line on corruption without actually pursuing the tough cases and endangering his perfect record of convictions (a strategy that led former FBI director James Comey to dub Bharara and his colleagues “the chickenshit club”5).

  To ensure the success of his strategy, Bharara seems to have done what any good politician does: he hired PR people, lots of them. Press conferences, press releases, dramatic predawn arrests, perp walks for the cameras, well-publicized speeches, and TV appearances became the norm. Bharara was a natural performer, shifting between self-deprecating humor and rather pompous moralizing. Following each arrest, he invited the cameras in and fed reporters carefully prepared soundbites (“Greed, sometimes, is not good,” he told the press after Rajaratnam’s arrest, declaring that the case should be “a wake up call for Wall Street.”6).

  Bharara also became known for his habit of writing lengthy complaints against his targets, exhaustively detailing the allegations against each defendant. Reputations were destroyed long before cases reached the courtroom, and indeed many never got there. Feeling powerless to fight the government’s narrative, which the press eagerly picked up and disseminated, most defendants of the era chose to settle out of court and pay hefty fines.7 Much later, in 2015, a district judge would strongly rebuke Bharara for these tactics, noting that “criminal cases should be tried in the courtroom and not in the press.” She criticized the government’s “brinksmanship relative to the Defendant’s fair trial rights,” the USAO’s orchestrated “media blitz,” the questionable timing of some of his arrests, and his tendency to “bundle together unproven allegations regarding the defendant with broader commentary on corruption” in his public statements.8 All these were tactics he had practiced in previous cases, and many of them showed up in mine.

  In 2009 Bharara’s playbook had not drawn much scrutiny, and the moment my name came up in the Rajaratnam investigation, he must have seen an opportunity. A high-profile global businessman with close ties to the titans of industry and politics—that would look very good on his résumé. That I, like many of those he targeted, was a fellow Indian only served to burnish his tough-guy aura. There was just one problem in my case: he had little if any evidence to go on. I imagine this irritated him—he once described to an interviewer the frustration when “you have a belief that somebody has committed a crime and you just can’t get the evidence because no one has flipped or because there are no recordings …”9 He kept digging, but he also began his parallel offensive, setting out to ensure that by the time I was actually tried everyone would already believe I’d committed the crime.

  On May 11, 2011, Rajaratnam was found guilty on all five counts of conspiracy to commit securities fraud and nine counts of securities fraud. Even in his closing argument against the defendant, prosecutor Reed Brodsky still seemed to be making a case against me. “You don’t get on the board of Goldman Sachs without having accomplished a lot in your life and having a great reputation,” he declared. “Having a great reputation doesn’t give you a free pass to violate the law. Nobody is above the law, no matter how good their reputation is.”10

  As I read the press coverage of the verdict, I could not shake the growing sense that I too had already been found guilty, although I had been neither charged nor tried. Even my usually sanguine legal team was somber. No one was telling me not to worry any more, not even Gary. Instead, he told me, “We need to prepare to defend a criminal case.”

  5

  Guilty Until Proven Innocent

  Thou hast led me through my crowded travels of the day

  to my evening’s loneliness.

  I wait for its meaning through the stillness of the night.

  —Rabindranath Tagore, Stray Birds, 241

  May 2011

  My calendar was empty. I refreshed the window, but it was no error: blank. I could not remember the last time I’d had a day like that. I was accustomed to every hour being scheduled—back-to-back appointments, every meal a meeting, and every break a list of phone
calls to be returned. Now, the empty pages in my calendar reflected the strange sense of blankness that had settled over me since the Rajaratnam trial. It all felt surreal. Could this really be happening? Every morning, I still got up and put on a suit—a lifetime’s habit was hard to break. But the reality was that I no longer had an office to go to, and the only meetings scheduled were with my lawyers.

  There are few things more painful than watching friends and colleagues turn their backs and walk away, in my case often without even giving me the opportunity to tell my side of the story. McKinsey was particularly hard. Partners with whom I’d worked for years, if not decades, suddenly stopped returning my calls or spoke harshly about me behind my back. Many were people I’d helped and mentored, like Adil Zainulbhai, head of the India office, who went out of his way to call many high-profile clients and government officials in India to tell them that I had nothing to do with McKinsey any more. I learned this because many of those people immediately called me themselves—our relationships went back much farther than their relationships with Adil. I don’t believe it was a personal attack on me, but I wished Adil had called me first about what he was going to do. Many others, however, did reach out to offer their support, including former McKinsey managing director Ian Davis, my European colleague Herb Henzler, my secretary Elizabeth Heno, Peter Walker from the New York office, and Ajit Jain, now working for Warren Buffett at Berkshire Hathaway. Even partners I had not been in touch with for decades suddenly got in touch, like my friend Alistair Hanna from my early days with the firm. Most of my colleagues in the not-for-profit world stood by me. I did indeed learn who my real friends were.