The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund

by Anita Raghavan

  “That evidence is devastating for the defendant…If you believe Ms. Eisenberg, it is over, it is over, the defendant is guilty of illegally tipping.” Later, his colleague Reed Brodsky said that Gupta would have to be “one of the unluckiest men in the world” if jurors were to buy defense arguments that he didn’t leak information to Rajaratnam despite a pattern of him calling the Galleon hedge fund manager after board meetings and Rajaratnam trading shortly after the calls.

  Naftalis sounded the same themes he had at the start. He said that Gupta had legitimate business reasons for speaking with Rajaratnam and “never did any insider trading, period, zero, none.” If Rajaratnam so relied on Gupta’s insider tips, he would have asked Gupta to remain on the Goldman board rather than take up the position at KKR. He would have said, “You’re my meal ticket there,” said Naftalis. Instead, he told Gupta to take the KKR job “in a heartbeat.”

  After walking the jury through the evidence, Naftalis, his voice falling to a faint whisper, appealed to the jury to consider their verdict carefully in the context of a great man’s life: “In a few weeks this case will be a dim memory to you…But for Rajat Gupta this is the only case, and whatever you do here will mark whatever future he has left.”

  At 11 a.m. on Friday, June 15, 2012, word trickled out that there was a note from the jury. No one paid much attention at first. An hour earlier, the jury had placed its lunch orders with Judge Rakoff’s court deputy, suggesting that deliberations were set to go into the afternoon. Since the start of the trial, there had been twenty-five notes from the jury for everything from smoking breaks to juror number 6 telling the judge that she knew Goldman president Gary Cohn’s daughter, who attended the Trevor Day School, where she worked.

  Reed Brodsky, the prosecutor, saw the court security officer, a tall man with a black goatee, walk into the jury room and come back out. He had nothing in his hands. Evidently he had stuffed the envelope with the word “verdict” written all over it into his pocket. Then he walked into the courtroom. Not seeing Judge Rakoff’s courtroom deputy, Linda Kotowski, in sight, he stood outside the door to Judge Rakoff’s chambers and waited.

  Kotowski at that moment was meeting with Stephanie Cirkovich, the press officer for the Manhattan federal court, and Judge Rakoff to discuss press procedures for the jurors in the event of a verdict. The three met for twenty minutes, with some issues left undecided.

  “We’ll see when the verdict comes in,” said Judge Rakoff as Cirkovich was leaving his chambers. When she and Kotowski opened the door into the courtroom, the court security officer was standing outside with an envelope. He gave it to Kotowski.

  By now, a nervous energy was starting to build in the courtroom. Gupta, dressed in a navy suit, white shirt, and orange-red tie, had returned to the defense table to sit in his usual spot in the third seat. A half hour earlier, he was sitting in the courthouse cafeteria playing cards with a couple of his daughters. No one seemed to know what the jury note was about—or at least they weren’t telling. But when a US marshal appeared, seasoned court observers suspected that there might be a verdict.

  Another sign that the jury note might be important came when Alan Friedman, a lawyer at Naftalis’s firm, Kramer Levin, walked over to the press side and pulled away his public relations manager. The two huddled at the back of the room. Then Naftalis returned to the courtroom. He walked straight into the well, skipping his usual banter with the press. He seemed unusually serious. If indeed it was a verdict, it was not a good sign.

  Typically, quick verdicts favor the government. David Frankel, Naftalis’s colleague, rose from his position in the second chair and gave his seat to Gupta. It seemed like something deadly serious was about to happen.

  At 11:30 a.m., Judge Rakoff entered the courtroom for the penultimate scene. He confirmed what everybody already knew. Gupta sat stoically, as he had every day, at the defense table. Behind him were his wife, Anita, and three of their daughters. The oldest, Geetanjali, who had testified so eloquently a few days earlier, was noticeably absent. She was at the Starbucks coffee shop on the corner of Worth and Lafayette Streets. She had work and needed an Internet connection.

  At 11:28 a.m., New York Times reporter Peter Lattman, who was also at the Starbucks, received an email on his BlackBerry that a verdict had been reached. He yelled to a colleague, “They’ve reached a verdict,” and then he turned to Geetanjali and delivered the same news. She looked up from her laptop, startled. The three raced to the courthouse, a block away. Geetanjali managed to slip in just before the jury filed in and sat with her hand on her mother’s shoulder.

  At 11:35 a.m., the jury filed into the courtroom. Judge Rakoff reviewed the verdict to make sure it was in proper form. Then Rakoff’s courtroom deputy played her role. “Mr. Foreman, please rise. You say you have agreed upon a verdict,” she said.

  “Yes,” he replied.

  “On Count 2…not guilty,” he said.

  For a moment, it seemed like the jury had found Gupta not guilty.

  But then the foreman reeled off a string of “guiltys.”

  Gupta sat expressionless, his face as constricted as his future.

  In the visitors’ gallery, two of his daughters cried, the younger of the two sobbing loudly. A third Gupta girl embraced them both, tenderly stroking one of her sisters’ hair.

  Rajat Gupta’s wife, Anita Mattoo, covered her head in her hands and lowered it. As the jury filed out, the courtroom stood up at once—except the Gupta girls and their mother.

  After Judge Rakoff left the courtroom, Gupta hugged his lawyers.

  He then turned to his family.

  He walked out of the well and locked arms with his daughters and wife in a huge, long embrace. It was sacred ground: a show of private grief in a very public place.

  Throughout the trial, Gupta’s wife and daughters gave him strength. They held out a comforting hand or acknowledged a nod when he looked back from the defense table with a warm smile.

  The love the family felt for each other had so moved the jurors that when they left the courtroom, some were teary-eyed. They wanted to see Gupta walk out a free man. Now, in his darkest hour, it was Rajat Gupta, like his father, who was the rock.

  He extended his hand to his wife, who, as hard as she tried, could not mask her feelings. She had flung her head back at first when she heard the guilty verdicts. She was disgusted by it all. The man she knew and the principles he stood for did not emerge during the four-week trial she had attended day after day. In his hands, Gupta cradled the head of one of his younger daughters, who seemed the most visibly upset by the verdict. He consoled her, stroking her head as she sobbed loudly. Just as he had when he was a young boy and he and his brothers and sisters lost their parents, he found in himself the strength to stand tall.

  Chapter Thirty-Nine

  A Family Secret

  Gupta spent the summer between his conviction and his sentencing trying to avoid second-guessing the decision he and his lawyers had made not to have him testify in his defense. He kept busy, spending time with family and friends, officiating at a wedding, contemplating building a tree house for his grandkids, and reaching out to people in his vast circle to write letters on his behalf for his upcoming sentencing. The letters turned into a litmus test of loyalty. When old colleagues from McKinsey came to visit, the seemingly immovable Gupta would detail the people whose careers he had nurtured—his lieutenant Jerome Vascellaro and his former coworkers from Scandinavia—who now were not willing to pick up a pen and write a letter on his behalf. He felt that he had been made a scapegoat for the public’s anger toward Wall Street and he wondered if his friends who now cast stones were sitting in self-made glass houses. “Can you imagine if everyone’s phone was wiretapped?” he asked a friend, suggesting that he would not be the only one facing criminal charges.

  For most of his career, Gupta had lived outside the epicenter of capitalism, New York City, where one’s net worth and job title had a lot to do with which doors were open or c
losed to a newcomer. His stepping down as managing director of McKinsey came just as he was settling into life in the Big Apple, where the yardsticks of success were different from those in Chicago or Scandinavia. And the circles he traveled in only served as a reminder of the chasm between him and them—the Rajaratnams of the world, whose wealth allowed them single-handedly to bankroll the causes that Gupta collected checks for. For an achievement-driven man like Gupta, it appeared that keeping up with the Rajaratnams was important. It was too hard to resist even if it meant bending the rules.

  This desire to play in a very elite sandbox was perhaps just one of the inducements to breaking the law, but since Gupta is a man who keeps his own conscience, it is unlikely that we will ever really know what he felt deep inside. Was it a sense that passing along a bit of inside information was no more reprehensible an act than driving seventy miles per hour in a sixty-five-mile-per-hour speed zone? Was it that for the first time in his life Gupta was flying without a manual? (There was no HBS handbook or McKinsey code of conduct to comply with anymore.) Or was it that everyone else around him seemed to be doing it? After all, some of his own friends had had regulatory scrapes before and emerged with hardly a bruise.

  In the weeks after his conviction, Gupta’s daughters, who relied on their father for everything from getting through a painful breakup to forging a new career path, now found themselves in the position of trying to be a rock for the biggest rock of all, their dad. At times during the summer between his conviction and his sentencing, his second daughter, Megha, spotted an “unfamiliar look of fear on his face.” When that happened, she would put her arm on his shoulder and say, “Don’t worry, Baba.” Deeply private and dignified even with his own family, her father would move quickly to compose himself. “I’ll be all right, baby,” he would say. “Are you all right?…If my babies are all right, I’ll be all right.” It was a salient quality of her father’s: even in times of stress, his concern lay not with himself but with others.

  Unlike the stoic Gupta, his wife, Anita, freely gave way to her emotions. She was stunned by the verdict. “Every single lawyer told us this case was not going to go forward,” she declared to a visitor. But “as soon as the judge gave the instruction, I knew it was over.” It was not the words but the judge’s tone that made it clear to her that the jury would come back with a guilty verdict. Even at times when his wife would break down in tears, Gupta managed to keep an even keel.

  “Life is just a journey,” he said philosophically.

  “I want off this journey,” shot back Anita, sobbing as she spoke.

  After the verdict, some friends were in such disbelief that they questioned the jury’s decision with the analytical power worthy of a McKinsey consultant. “As I listened to the evidence, particularly the evidence about the 3 board meetings in which he was charged with passing information, all I could think of was, but what about the other 49 Board meetings” (where material information was discussed, but no trade followed), wrote former McKinsey consultant Purnendu Chatterjee in a letter sent on Gupta’s behalf to Judge Rakoff. “I may be biased in interpreting this data, but I do know from my PhD work in Statistics that prior basis has a significant impact on conclusion in a multivariate scenario where due to Press and other reasons, there could have been a strong prior bias about ‘Wall Street’ people.” Chatterjee’s letter was one of more than four hundred submitted to Judge Rakoff on Gupta’s behalf before his sentencing. Besides letters from global luminaries such as Microsoft founder and billionaire Bill Gates, who called him a “dogged advocate for the world’s poor,” and former UN secretary-general Kofi Annan, there were hundreds of heartfelt and moving letters from friends, cousins, nephews, nieces, and his wife and children.

  Even Aman Kumar, whose father, Anil, had testified against Gupta at trial, felt compelled to write for the man he simply knew as “Rajat uncle.” Gupta is no relation to Kumar; “uncle” is just an affectionate appellation young Indians often use to address their elders. Aman Kumar said some of his “most treasured childhood memories are of falling into the Colorado River while fly fishing with Rajat uncle, or of Rajat uncle excitedly telling former President Clinton about an award I had received that week from then President Bush, or of lazy walks together on the beach talking about middle school classes and crushes.”

  A week after the jury rendered its decision, Gupta headed to Boston to help his eldest daughter, Geetanjali, rearrange her house to create a new playroom for her twin daughters, Meera and Nisa. They adored their grandfather. It was he who danced with them and made them smile when they were feeling out of sorts. Gupta could not change the outcome of the trial, but he could see to it that his family was as settled as possible if and when he had to leave them. He focused on getting his financial house in order. His associates at New Silk Route wanted him to sever his ties with the private equity firm he helped start. But Gupta was not going to accept a lowball offer for his stake in the company. There was no way of knowing how long he would be away or how much of his legal defense he ultimately would be forced to pay for. (Goldman had advanced him money to pay his legal bills, which by the end of the trial amounted to $30 million. But a week before his sentencing, Gupta learned that Goldman was moving to recoup nearly $7 million of legal fees and monies spent on investigating the case. Gupta balked at the request.)

  For a man to whom reputation was everything, the public humiliation was hard to bear. Harder still was the thought that his lapse in judgment had brought anguish to his wife and four daughters, whom he dearly loved, whom he had devoted his entire life to protecting. Every day seemed to bring a new ignominy—and not necessarily for him.

  Belatedly, he learned of the slights faced by his third daughter, Aditi, whose graduation from his alma mater Harvard Business School he missed because of the trial. Soon after his legal problems came to light, news articles chronicling them “magically appeared” in her on-campus mailbox. A nasty email made the rounds at HBS calling for the school to cut its ties with her father. Gupta was on the HBS board of dean’s advisers, a group of businesspeople, not all alumni, who meet informally as a group with the dean each year, and on the advisory board of the school’s India Research Center in Mumbai. And during one of his daughter’s classes in her first year at HBS, Aditi had to sit and struggle to keep an even keel as Preet Bharara, the US attorney for the Southern District of New York, whose office brought the case against her father, spoke for more than an hour about his fight against white-collar crime.

  Try as he might, Gupta still found it hard to accept the verdict. In July, a month after his conviction, he hosted two dozen couples, friends from his IIT mechanical engineering class of 1971. The close-knit group met every year, but their gatherings for the past two years had been marred by the news that one of their most admired friends was being investigated for a crime they simply could not contemplate him committing. Naturally, when they met, the verdict was at the forefront of Gupta’s mind. Even after the conviction, Gupta still believed passionately that he was innocent. He felt he had been unfairly lumped into a sprawling network of people who regularly fed Rajaratnam inside information.

  Even if, for the sake of argument, a couple of words had slipped from his mouth to Rajaratnam after the Goldman meeting, it was never his intention to pass along inside information, and he certainly never expected Rajaratnam to trade on it. “I can’t be responsible for someone else’s actions,” he asserted to his friends. After all, as he reminded them, he had not made a dime from any of it.

  Gupta revealed to his friends his disappointment with the fact that the judge presiding over the case had not allowed his lawyers to present an alternative theory about how Rajaratnam had learned about Warren Buffett riding to the rescue of Goldman Sachs. Judge Rakoff had blocked Gupta’s legal team from presenting evidence that would have opened up the possibility of a senior Goldman executive tipping Rajaratnam. And after all his hopes for a fair hearing of his case, Gupta felt the members of the jury had not weighed the fact
s with the gravity he expected. Their deliberations had ended so quickly, so abruptly, that it was hard to believe that they had taken enough time to carefully consider the evidence before them.

  * * *

  Shortly before 2 p.m., on Wednesday, October 24, 2012, Gupta returned to Honorable Judge Jed S. Rakoff’s courtroom, a changed man from the one who had sat stoically through his trial. If he had once been the confidant of CEOs and a keeper of corporate secrets, he now stood convicted of giving them away. After embracing his wife, Anita, who had come to court wearing dark sunglasses, and hugging his four daughters, he walked into the well to be sentenced.

  As the courtroom deputy intoned, “All rise,” Judge Rakoff entered the courtroom. After some preliminary remarks, Judge Rakoff turned to Naftalis to make his case for probation rather than a prison sentence.

  “I think it is fair to say Rajat Gupta’s life has been an extraordinary one, and he has lived a life well-lived, a life devoted to giving back,” said Naftalis. He pointed to the probation officer’s report, which said that Gupta’s charity work arose “out of a true devotion to their causes” and not out of any sense of obligation “because of the prominence of his wealth.” As Naftalis spoke, Gupta’s eldest daughter, Geetanjali, whose poise on the witness stand during the trial was impressive to watch, dabbed her eyes with a tissue. Seated next to her mother, she was dressed simply in a black suit with two strands of pearls.

  “This is as laudatory a description of someone at the bar of justice as I have ever seen,” Naftalis said.

  Judge Rakoff agreed but then offered a glimpse into the competing arguments he must weigh. “I have received some suggestions that this is just a rich man who through his connections could get a lot of people to write good letters. I think that’s totally wrong,” said Judge Rakoff. The record, he noted, “bears out that he is a good man. But the history of this country, and the history of the world, I’m afraid is full of examples of good men who do bad things. So that’s not the end of the subject.”