Naftalis countered, arguing that the offense is “one piece but one piece of a larger puzzle.” It was “aberrational behavior.”
Again Judge Rakoff agreed but then raised a salient point. “If the aberrant misbehavior in some hypothetical case was a murder, the fact that the person had otherwise led a blameless or even totally lawful life would not mean that you didn’t have to impose serious punishment for the murder,” he noted.
In case the judge was inclined to sentence Gupta to prison, simply for the general deterrence effect, Naftalis was quick to point out that Gupta was “a man who has suffered punishment far worse than prison already. The fall from grace that Mr. Gupta has suffered or experienced as a result of this matter is as steep as I have ever seen anyone in any case that I have ever been in” as a prosecutor and defense lawyer. “I mean this was an iconic figure, someone who had been a role model for countless people around the globe…I mean this is a fall from grace of Greek tragic proportions.” Unbeknownst to everyone else in the courtroom, Gupta’s fall was not so much a Greek tragedy as it was an echo of a deep, dark family secret that Rajat had spent his life running from.
* * *
“A great deal of sensation” has “prevailed over this case in newspapers…It is not a case of pickpocketing by one having a dozen previous convictions. But in it concerns a career of a brilliant intellectual, a young man…Even if a fine of one rupee is imposed on him, then his career, his life, his all will be doomed—doomed for ever.”
With those words, on Monday, November 25, 1935, S. K. Sen, one of Calcutta’s best defense lawyers, presented his closing arguments in a highly celebrated case that pitted the Crown against Ashwini Kumar Gupta, Rajat Gupta’s father. Not even thirty years old, Ashwini Gupta had a promising academic career ahead of him, but the case that had its beginnings on Tuesday, April 9, 1935, would change the course of his life forever.
Around 2 p.m., about three hundred students, mostly men, dressed in shirts and dhotis, filed into a large hall on the second floor of Calcutta University’s Ashutosh Building, a dignified colonial-era edifice.The students had assembled that afternoon to take their final paper for the bachelor of arts degree in economics.
It had been a grueling day. In the morning, amid the sweltering one-hundred-plus-degree temperature, the students had written their answers for the first part of the exam. Apart from a few empty seats, the hall was packed. Between thirty and forty guards and a number of proctors policed the room.
Shortly after the exam started, a proctor spotted something curious. A student with the identification number 160 was sitting in a different seat than his assigned one, where he had been sitting all morning. For the afternoon session, he had moved into the place of a candidate who was absent that day for the exam. It was a seat that was quite far away from the one he had been given. He was dressed in a fine dhoti with an elaborately embroidered border. A proctor started watching the student and suspected that he was wearing a false mustache and a pair of sunglasses. When the proctor quizzed the student, he said he could not bear the glare of the sun and so he had changed his place. The proctor told the student to return to his own seat, which he did.
After consulting with one of his colleagues, the proctor decided to ask the student for his signature to see if it would tally up with the signature on file for the student. To prevent cheating and reduce the risk of someone else sitting in for a student at an examination, the university typically asked students before an exam for their signatures, which were kept in case they needed to verify someone’s identity. The proctor found that the signatures did not match.
The view among the proctors was that the man was not the real candidate but someone impersonating him. One asked the student to fill in a blank application form when he submitted his answer papers at about 4 p.m. When he did, two of the proctors advised the student to see the presiding officer in charge of the exam hall that afternoon before taking his leave. But the student paid no heed and hurried down the staircase, taking off along Colootolla Street, a busy thoroughfare.
The proctors gave chase, one of them yelling, “Thief, thief,” as the student ran out of the building. They followed him until he slipped and fell on the pavement outside. When the three proctors pinned him down, they found that his mustache and sunglasses were gone. The proctors escorted the man to the office of the university controller. After the proctors filled the controller in on what had transpired, he asked the young man his name.
“Ashwini Kumar Gupta,” he replied.
On questioning, Gupta admitted that during the final two papers of the economics examination for the bachelor of arts degree, he had impersonated a student who was assigned the identification number 160. When the controller asked Gupta why he sat in the student’s place for the exam, Gupta said the boy, whom he tutored privately in economics, had asked him to do so. Gupta was sent home to wait.
A few days later, the police visited Gupta at his home in North Calcutta and arrested him. In his possession they found, among other things, a dhoti and one Calcutta University examination admission card with the identification number 160, which belonged to the student who was supposed to be taking the exam that day. The “dhobi mark” on his clothes—the telltale sign left by Indian washermen to show which clothes belong to different clients—matched the same mark on the clothes that Gupta’s student was wearing when he surrendered a few days later. The similar marks suggested that Gupta was wearing his student’s clothes in an effort to appear like him. As the police dug into the case, they found that on the morning of the exam, Gupta had asked his bosses at Ripon College for casual leave because he was suffering from diarrhea. He had earlier gone to his barber, where he had his hair dyed, clipped, and curled, ostensibly to conceal his real identity.
The subsequent case was a cause célèbre in Calcutta. For two weeks, newspaper readers feasted on daily reports of the happenings in court, which one paper carried under the headline “Professor and Pupil on Trial.”
Gupta denied all the charges and said he had been framed. Nevertheless, on December 4, 1935, a Calcutta magistrate found Gupta guilty of both counts on which he was charged: cheating the registrar of Calcutta University by pretending to be someone else, and forging the economics examination papers. Gupta was sentenced to six months’ hard labor. Gupta appealed, but in April 1936, his sentence was upheld by the Calcutta High Court. The appellant took a “defense which was entirely false and unworthy of a person of his status in society,” the court ruled.
What the court and the public didn’t know was that his defense may have been the only course open to an honorable man. Gupta had stood in for his student, who paid him 50 rupees a month to be tutored, in the Calcutta University exam. Gupta had accepted the payment in an apparent effort to help raise money for the Socialist Party. Ashwini Gupta appeared to have committed an ignoble act for what only his close associates knew to be a noble cause, love of country, while three-quarters of a century later his son would throw away a noble reputation for an ignoble cause.
* * *
Before Judge Rakoff prepared to pass sentence, Gupta moved to the second chair at the defense table and addressed the court.
“The last eighteen months have been the most challenging period of my life since I lost my parents as a teenager,” he said, looking strained as he spoke. “I have lost my reputation that I have built over a lifetime. The verdict was devastating to my family, my friends and me. Its implications to all aspects of my life—personal, professional and financial—are profound…Anita’s and my daughters’ happiness means more to me than anything else…We are a close and loving family. They have had to endure a barrage of negative press about their father and husband, unkind comments from their colleagues and classmates, uncertain prospects for their future careers and a host of other negative outcomes. It is unbearable to me to see how much they have suffered. I just feel terribly that I have put them through this.”
As he came before the court to be sentenced, Gupta sa
id, “The overwhelming feelings in my heart are of acceptance of what has happened, of gratitude to my family and friends, and of seeking forgiveness from them all.”
After a short break, Judge Rakoff returned. The government was seeking a term of incarceration of as many as ten years. In lieu of a prison term, Gupta wanted to be sent to Rwanda so that he could “work with rural districts to ensure that the needs to end HIV, malaria, extreme poverty and food security are implemented.”
Judge Rakoff rejected both recommendations. The immense loss of stature Gupta had suffered meant that severe punishment was unnecessary to keep Gupta from transgressing again; however, a sentence of probation alone would not have the desired effect of deterring others to commit similar acts in the future. While there was no need to prove motive at trial, Judge Rakoff speculated on it in his sentence, saying that Gupta, for all his charitable works, “may have felt frustrated in not finding new business worlds to conquer.” In Judge Rakoff’s mind, “there is no doubt that Gupta, though not immediately profiting from tipping Rajaratnam, viewed it as an avenue to future benefits, opportunities and even excitement.”
As he arrived at his sentence, the judge touched on the seemingly contradictory and perplexing threads in the life of the defendant who stood before him.
“The Court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their time of need,” Judge Rakoff pronounced. “But when one looks at the nature and the circumstances of the offense, the picture darkens considerably. In the Court’s view, the evidence at trial established, to a virtual certainty, that Mr. Gupta, well knowing his fiduciary responsibilities to Goldman Sachs, brazenly disclosed material, non-public information to Mr. Rajaratnam at the very time, September and October 2008, when our financial institutions were in immense distress, and most in need of stability, repose and trust.” Gupta’s tipping of Rajaratnam of the $5 billion investment by Warren Buffett “was the functional equivalent of stabbing Goldman in the back.”
At 4 p.m., two hours after Gupta had first entered the courtroom, Judge Rakoff imposed his sentence: two years in prison. Then he picked up a stack of papers and walked off the bench with a flourish, leaving Gupta and his glittering accomplishments—IIT, HBS, McKinsey—forever tarnished. As Gupta sat expressionless next to his lead lawyer, Naftalis, he was as lost and laid bare as he’d been when he cremated his father at the age of fifteen. Ashwini Gupta had begun his career with a disgrace and ended it as an intimate of the first prime minister of independent India. Five thousand miles away and fifty years later, his son would rise to become a confidant of CEOs and heads of state yet end up disgraced in America. He would be remembered as a disappointment to the Indians to whom he had once been an inspiration, and he would turn into an all-too-easy excuse for prejudicial Americans to dismiss his moral lapse as indicative of the Indian national character. Far from the charmed life of the twice blessed, he would be cursed to live out a sentence of lifelong regret and self-reproach, a punishment more onerous than any a judge could impose.
Afterword
At 12:30 p.m. on December 5, 2011, Raj Rajaratnam surrendered to authorities at the Federal Medical Center Devens, forty miles west of Boston. Upon arrival he was fingerprinted, photographed, strip-searched, and issued a number that in his new life would serve as his identity. He was then led to his living quarters, a ten-foot-by-ten-foot cell with a desk, seat, toilet, sink, wall locker, and bed. Seven months into his sentence, it appeared that prison was having a salubrious effect on him: overweight most of his adult life, Rajaratnam is looking lighter these days, reported a visitor.
During his heyday as a hedge fund titan, Rajaratnam was bombarded with callers and visitors every day. Now in prison he bemoans the fact that his rich and powerful pals no longer visit or take the time to stay in touch. Their reticence is a reflection in part of the fickle world of Wall Street’s transactional friendship, but it is also a fear of taint by association.
Rajaratnam’s friends and even his family know that the government’s probe into insider trading at hedge funds is far from over. In March 2013, prosecutors indicted Rajaratnam’s kid brother Rengan, whose suspicious trading at Sedna triggered the SEC’s investigation into Galleon in the first place. The SEC filed a parallel action. Rengan, who now lives in Brazil, was charged with trading on inside information in many of the same stocks, Advanced Micro Devices and Clearwire, that his elder brother Raj was convicted of in May 2011. At one time, being a friend of Rajaratnam’s was a point of pride, but today it is a liability, so much so that rival hedge fund managers get their handlers to call the press to play down any suggestion of a relationship. The irony, of course, is had it not been for Rajaratnam’s notion of “honor,” a bond among thieves, they too could be sitting exactly where Rajaratnam is—in a lonely jail cell. Even with his own future at stake, Rajaratnam refused to cooperate with the government. In an interview he granted after he was arrested, he assailed the South Asians swept up in the case, singling them out for their lack of honor.
“The Americans stood their ground. Every bloody Indian cooperated—Goel, Khan, Kumar,” he railed in Newsweek magazine. (Rajaratnam was not entirely correct; one of his carefully groomed protégés, Adam Smith, cooperated and testified at his trial, but he was never one to let the facts get in the way of a good story.)
Nearly a year into Rajaratnam’s sentence, the newest heavy hitter on his legal team, Patricia Ann Millett, stood in a large ceremonial courtroom in the federal courthouse at 500 Pearl Street and made the case for a reversal of his conviction. Millett was impressive. “In this case, you had cascading errors” in the wiretap affidavit, she declared. One of the most glaring, a central pillar on which Rajaratnam’s lawyers were seeking a reversal, was the “wholesale omission” of the SEC investigation of Galleon and the results of the probe. Just as Manhattan US attorney Rudolph Giuliani pioneered the use of the racketeering statute to go after bankers and traders, the Rajaratnam case was the first time prosecutors had ever resorted to wiretaps to snare a white-collar defendant. Since Rajaratnam’s arrest, the government had gone to the wiretaps time and time again to build cases against a new and even bigger set of names in the hedge fund industry. And without the wiretaps, the government may not have succeeded in the Gupta case. Gupta was acquitted on two counts where there were no wiretaps.
As Millett spoke, a lawyer who spearheaded the government’s defense of its recordings of Rajaratnam and his ring sat in the back of the room and listened intently. By October 2012, Jon Streeter was playing for the other side as a white-collar defense lawyer at Dechert LLP. But the ruling by the panel of three appeals court judges was as important to him in his new life as it was when he was defending the wiretaps as a prosecutor. The Galleon case had revolutionized the way white-collar crimes were investigated in the United States. If the conviction and wiretaps were upheld, it would open up a gusher of new cases for attorneys like Streeter. And it would change the way they fought them. With the hard-to-dispute wiretaps to defend against, rather than the more nebulous circumstantial evidence, the case for plea bargaining was likely to be a more attractive course for all but the wealthiest of white-collar defendants. Though Rajaratnam was not in the courtroom as his lawyer Millett spoke, he had the most at stake. Unless he is successful in his appeal and is subsequently found not guilty in a new trial, he won’t be seeing his powerful pals for a while. His ten-by-ten cell will be his home until at least 2021.
In the summer of 2012, Rajaratnam’s nemesis, Anil Kumar, who provided powerful testimony against his onetime friend, was sentenced to probation. His noncustodial sentence came after prosecutors spoke at length of his “extraordinary” cooperation in helping convict Rajaratnam and his former mentor, Rajat Gupta.
After the sentencing, Kumar walked out of the federal courthouse at 500 Pearl Street a free man, with a smile on his face and holding the hand of
his wife, Malvika. Their happy faces masked the fact that Kumar’s life would never be the same again. “My ability to return to my prior professional business world has disappeared totally,” he said. “I have become a pariah in that world and am followed by questions and whispers. Probity, reputation and trust were the bedrock of my life and in that I and my family have lost everything.”
Organizations that would have once boasted of his services when he was a McKinsey consultant now stayed clear of any association with him. His offers to help schools for the disadvantaged in Silicon Valley were rejected outright, and promises were broken at the eleventh hour.
In 2010, Kumar volunteered to consult pro bono to the Baylor College of Medicine in Houston, Texas, which was in financial trouble. Baylor’s president and chief executive, Dr. Paul Klotman, told Kumar that he would write a letter to the court at the time of sentencing describing the work Kumar did for the school. But when it came time to write the letter, lawyers precluded Klotman from signing it—the potential negative press for Baylor was too great.
In India, Kumar faced a warmer reception and an opportunity for rehabilitation. His old friend from the Doon School, Analjit Singh, tapped Kumar to establish a medical education initiative between his company, Max India, which offers health-care services and runs insurance companies, and Baylor. One day in the fall of 2012, just days before Gupta was to be sentenced, Kumar stopped by a friend’s house in New Delhi. He was back to his old self, regaling the friend and his guests about the inordinately long hours he was working.
The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund Page 44
