Rajat Gupta, former chief of consulting giant McKinsey and the face of the global outsourcing business since the outsourcing revolution began in 1993, is now being made the whipping boy for the sins of the Federal Reserve and its allied Wall Street mafia, including Goldman Sachs, now cast in the improbable role of injured innocent.
ONE: GUPTA IS THE PERFECT PATSY FOR THE FINANCIAL CRISIS
Gupta, a charismatic and extremely successful and well-regarded Indian management consultant and philanthropist, is a convenient scape-goat for the real villains of the global financial heist.
Why?
Because of his connection to McKinsey and Goldman….
and also, indirectly via McKinsey, to Enron
firms synonymous with the excesses of globalization and the tech bubble, respectively.
A foreign born, multi-milionaire businessman, in an industry blamed for the loss of American jobs, works as a ready-made cartoon villain for the anti-globalization crowd. He’s the perfect foil for the “enforcer of Wall Street,” Preet Bharara.
Bharara is also an Indian, a Sikh.
Anyone with half a brain has seen this puppet show before.
Remember the election of Barack Obama, a colored man, who, we were supposed to believe, would think harder about bombing colored folks abroad?
We can see how that played out.
PROBLEM II: NO CLEAR QUID PRO QUO AND MENS REA
Then there is the first big problem with the case itself.
The wire-taps of Gupta talking to Rajaratnam do not record an actual tip being passed on for a tangible benefit and do not even name Gupta as a tipster, even though the mighty federal government, SEC and FBI both, have been investigating the case since 2007, surreptitiously taping Gupta between March and December 2008, and although they have about 2000 tapes altogether.
Those tapes make him look plenty guilty to the lay public though.
To the lay public, chat about Goldman board meetings sounds exactly like insider-trading.
It’s not. It’s careless, injudicious, irresponsible, and a violation of Goldman rules, and, had it been any other firm but Goldman Sachs and anyone with a less stellar record, unethical.
None of that necessarily adds up to a criminal insider-trading conviction.
For that you almost always need a quid-pro-quo and evidence of mens rea (guilty mind).
I said almost, because, the SEC has in recent cases aggressively expanded what a benefit might mean to the tipper, and what constitutes use of material nonpublic information by directors of a company.
Nonetheless, mere pillow-talk, even with a slick operator like Rajaratnam, doesn’t cut it.
Here is what Jagdish Bhagwati, a highly respected Columbia economist, had to say about Gupta’s case:
“You go to a meeting and you hear something which technically could be considered insider information and you go to your friend and you say ‘Arrey [Lila: this is the Indian equivalent of “buddy”] you know what happened?’ And he doesn’t realise – and that is Rajat’s bad judgment – that this guy is a crook. I think this is what may have happened. It is the product of Indian culture…. I think most people will see Rajat as somewhat of a victim…..The fact that he has been doing a lot of good things for India and the Indian American community is going to stand in his favor. There will be cynicism among some people, but the vast majority will see him as a good man, who got caught on the wrong side of the street.”
There’s enough circumstantial evidence to open a civil case, sure. But the SEC didn’t do that. It opened an administrative hearing, where he would have had a much harder time defending himself. Everyone else involved with Galleon got civil cases filed against them.
That was weird, just there, and even Judge Rakoff admitted it.
“Usually, the fact that the SEC was allowed to proceed with its case means there won’t be criminal charges,” said Dewey, a defense lawyer who isn’t involved in the case. He also said criminal charges are “unlikely.”
U.S. District Judge Jed Rakoff in Manhattan, who oversees a related SEC lawsuit against former Galleon trader Adam Smith, said March 16 that the agency’s decision to file only an administrative action, and not a civil suit, was “bizarre.”
That’s the reason Gupta counter-sued. And the SEC dropped their case last year.
Then the FBI opened a criminal case. Many people think it never should have been.
PROBLEM III: EVIDENCE OF MULTIPLE TIPSTERS KEPT FROM JURY
There’s a third big problem with the case.
Judge Rakoff refused to allow the jury to hear wire-taps of another Goldman employee, David Loeb, caught tipping off Rajaratnam, repeatedly, about Intel, Hewlett Packard, and Apple, claiming they were hearsay.
But they’re not hearsay. They are absolutely crucial to the defense’s argument that someone else was tipping Galleon from Goldman.
We have only Rajaratnam’s shaky word that there was a tipster on the Goldman and Procter & Gamble board at all. He doesn’t ever name this person. Ever.
But we do have plenty of tapes of someone actually giving tips to Galleon. That person is not Gupta. It’s David Loeb.
Loeb is now being investigated by the Feds.
Loeb, who called Rajaratnam “Big Daddy”, called him several times on the same days that Gupta did.
Loeb passed information about Intel Corp. and Apple Inc. to Rajaratnam, according to excerpts of two phone calls tapped by the Federal Bureau of Investigation and submitted by Gupta’s lawyers. The defense obtained the documents after Rakoff ordered the government to turn over all evidence of other Goldman Sachs tippers relied on by Rajaratnam.
The Manhattan jury weighing the charges against Gupta, a former Goldman Sachs director accused of tipping Rajaratnam, never heard that evidence during his trial. U.S. District Judge Jed Rakoff ruled that the phone calls and e-mails were inadmissible hearsay. The defense rested today and the jury may start deliberations late tomorrow afternoon.
At a hearing yesterday, David Frankel, an attorney for Gupta, told Rakoff the evidence about Loeb was “crucial” to the defense and proved “that another person committed an act of which the defendant stands accused.”
The tapes of Loeb also go directly to showing that there was a culture of leaking at Goldman, which means Rajaratnam, besides being an important client of Goldman’s, had access to many other sources for tips.
He didn’t need Gupta to get leaks from Goldman insiders.
(TO BE CONTINUED)