A Greek tragedy of crime and punishment. Excerpt from “The Billionaire’s Apprentice,” June 24, 2013.

ANITA RAGHAVAN, Former Reporter, The Wall Street Journal; Winner, Overseas Press Club Award; Contributor and Former London Bureau Chief, Forbes

 

For some, The Billionaire’s Apprentice is a simple story. It is a familiar tale about crime and punishment. For others, it is a great travesty of justice. To quote a prominent defense lawyer in the case, “It is a Greek tragedy of epic proportions.” For me, however, it is something of a personal story. It is, in part, the story of my parents.

In 1958, over the objections of his own father, my dad boarded a ship in a very small fishing village in the southern Indian state of Kerala. None of my father’s siblings would ever leave India, but my father had a great dream to study botany at the foot of one of the foremost experts in the field, a professor at Princeton University. In 1958 he wrote to this professor. Several weeks later, the professor replied and said that he would gladly take my father into the masters program in botany at Princeton, and, what’s more, he would give him money to study. My father jumped at the opportunity.

He was one of the earliest pioneers in the great migration of Indians to the United States. Despite the vision and foresight of independent India’s first leaders, by the late 1950s, when my father was coming of age, the Indian economy was a basket case: Growth was stagnating, food shortages were common, and scarcity was the norm. You had to wait seven years for a phone line or a car. If you wanted a second phone line – and that was only for the very wealthy – you had to get a letter from a member of parliament. For a young man like my father, who was brimming with ambition, India offered little hope.

Oddly, America, while it was in the throws of the civil rights struggle, was surprisingly open and closed at the same time. In 1959, my mother came on her own to the United States to work at the Brooklyn Public Library. Her journey to the United States was remarkably similar to my father’s. She was a librarian in India. One day she wrote a letter to the Brooklyn Public Library asking if they had any exchange opportunities. They said they did, but not with India. However, they were willing to offer her a job for one year, and they would pay her $4,500, a fortune at the time. My mother jumped at the chance, and both my parents arrived in an America that was growing. And while its immigration laws were hardly welcoming, there were pockets of openness amid the vast pools of prejudice. [But] my parents did not stay in the United States. In the early 1960s there was no easy path for Indians like them to obtain a green card, the ticket to being a permanent resident in the United States.

 

Opportunity

There is an immense selectivity in the pattern of Indian immigration to the United States, says Professor Marcelo M. Suárez-Orozco, an expert on immigration and dean of the UCLA’s Graduate School of Education and Information Studies. The average Indian in the United States is 10,000 times more likely to have a doctorate than the average Indian. In other words, the Indians who come to America are by and large the country’s brightest and best, an observation that’s borne out, even today, by hard facts. Of the 3.2 million Indians in the United States, 70 percent have bachelors degrees, compared to just 28 percent [in the U.S. population overall]. Their median annual household income of $88,000 is almost twice what most Americans earn each year and 33 percent higher than the average income of Asians in the United States. Most of the overachievers are immigrants.

In the new millennium, [Rajat] Gupta and other India-born natives are ubiquitous in every sphere of American life. They are among the country’s most promising doctors and engineers and its most successful bankers and lawyers.

In 1970, my father returned to the United States. By now the change in immigration laws meant that he would have a clear path to citizenship. Around the same time, a young man named Rajat Gupta arrived at Harvard Business School to study for his MBA. Even though he came to America some 12 years later than my father, Gupta’s journey was remarkably similar; he came on an F-1 student visa, just like my father did, and as many Indian immigrants before him and after him would do.

A desire to chronicle the journey of my father and other Indian immigrants led me to write [this book.] As I learned more about Rajat Gupta, I was struck by how he and my father had set out on similar paths, but at some point their paths in life diverged. My father stayed true to his original purpose in life: to be the best botanist he could be. He would go to work every day of the year. When I asked him, “Daddy, are you going to work?” He would answer, “No. I’m going to study.” He became a full professor at Ohio State and he wrote many books.

For most of his career, Rajat Gupta stayed true to his original purpose. He climbed the ranks of McKinsey. His story is a familiar one. He turned around the Scandinavian office and then he was appointed to lead the Chicago [office], which he built. In 1994 he was named the global managing director of McKinsey, the first foreign-born managing director of the white-shoe consulting firm.

When the [insider trading] story first broke, I wanted to learn why someone who had accomplished so much in life, who really had nothing more to prove, ended up in bed with someone who was so very different from him, a man like Raj Rajaratnam. And I think, unfortunately, the answer is all too familiar. In 2005, two years after [Gupta] stepped down after a difficult third term at McKinsey, he found a new purpose in life: money. Throughout his trial, Gupta’s lawyers and friends strenuously argued that with $100 million to his name, Gupta had no financial incentive to tip Rajaratnam on corporate secrets, but, as we know, greed has nothing to do with what you have and everything to do with what you don’t have.

 

Audience question and answer session

QUESTION: Can you give us an overview as to what Mr. Gupta did? What was the actual crime that he committed?

RAGHAVAN: The government charged Gupta on six counts. Only two stuck, and they were the two that were supported by wiretaps. There were no wiretaps of Gupta giving information to Rajaratnam; what there were wiretaps of was of Rajaratnam telling lieutenants that he had gotten information from a Goldman [Sachs] board member. It was these hearsay wiretaps that were admitted into trial, and Gupta was convicted of tipping Rajaratnam on September 23rd 2008, at the peak of the financial crisis, about an investment Warren Buffett had made in Goldman Sachs. The government’s allegation was that Gupta hung up from a Goldman board call and a minute later called Rajaratnam; the two spoke for 30 seconds at most − again, there’s no wiretap of this conversation, but what we do know is that after Gupta hung up the phone, Rajaratnam called in one of his lieutenants and a second or two later the man walked out onto the trading floor and said, “Buy Goldman Sachs! Buy Goldman Sachs!” Rajaratnam bought a lot of Goldman Sachs stocks four minutes before the market was about to close.

The government [also] charged that a month later, on October 23rd, Gupta gave Rajaratnam information about Goldman’s fourth-quarter earnings, telling him that Goldman was actually going to lose money after the market was believing that it was going to make money.

QUESTION: Do you believe that Gupta received a fair trial based on normal business standards?

RAGHAVAN: I do. I think a lot of South Asians are fixated on the fact that there was nothing more than circumstantial evidence in this case. But you have to remember that before this case, every insider trading case that the United States brought and won was based on circumstantial evidence. The whole novelty about this case was that there were wiretaps.

QUESTION: Gupta is appealing his two-year sentence. What is the status of that?

RAGHAVAN: On May 19th a panel of three U.S. Appeals Court judges on the second circuit heard arguments by Gupta’s newest lawyer. Sitting in the courtroom, there was a lot of hope in the Gupta camp that one of the judges, Appeals Court Judge John Newman, might be a wild card, might be sort of a swing vote. Judging by the questions he asked, though, I’m inclined to think that he will uphold the conviction.

QUESTION: As a financial reporter, I’m sure you’ve encountered these fine gentlemen on a regular basis. What has been your experience with them?

RAGHAVAN: I think it was common knowledge in New York that Raj Rajaratnam traded on inside information; he made no secret of it. He often even approached journalists to see if they’d engage in the game.

A number of people, particularly South Asians, have asked the question, “Do you think Rajat Gupta was railroaded?” I’ve thought a lot about Rajat Gupta, because [although] he was an assimilated Indian − he was much like my parents; he became a U.S. citizen, [but] at the end of the day, assimilated as he was, he didn’t get one thing about America. America is very different from India. The rules are kind of black and white in this country and there’s no immunity from prosecution.

QUESTION: Based on his life experience, what do you think pushed [Gupta] to the point where he might have committed the crime he is accused of?

RAGHAVAN: In a talk that he gave at Columbia University he said that, when his parents died, had his mother not been a little smarter and put some money away, they would have been literally starving on the streets. Everyone saw the Rajat Gupta that we saw in later years, the one who was managing director, who was finely dressed, who had all the trappings of wealth and power, but what we didn’t see was here was someone who came from a very well-educated family, a very cultured family, but a very poor family. To be poor, and to be poor in India, was a great burden that he never forgot.

QUESTION: As it relates to large hedge funds, how common is this [kind of scandal]?

RAGHAVAN: In 2008, it was very common. Today in 2013, with Raj Rajaratnam [and many others] behind bars or on trial, it’s probably not so common. I think insider trading is sort of like a weed. You can spray DDT and it will disappear for years, and then it will spring right back up with the same virulence and vigor as it did before. We had a slew of insider trading cases in the late 1980s and that cleaned up Wall Street for a number of years and you had a return of it at the turn of the millennium.

QUESTION: This has been a big blow to the Indian community. Can you talk a little bit about that impact? And how does the Indian community bounce back from this?

RAGHAVAN: After I got to the end of the book, I wanted to come away with some sort of message for what this case meant to the Indian community. As I thought about it I remembered when my parents first came to the United States, and all my Indian friends, their parents seemed to do one of three things; they were either doctors, engineers or college professors. So the hopeful message that I came out with at the end of this story is that today we have a case, The United States of America v. Raj Rajaratnam, which is being prosecuted by an Indian-American U.S. attorney; we have a case that was built by an SEC lawyer who was Indian.

Around the same time that the Feds were investigating Raj Rajaratnam for insider trading, the Brooklyn U.S. attorney’s office was actually investigating him for terrorism, and the FBI agent on that case happened to be Indian, too. So I guess the one important and hopeful message that I think readers will take away from this book is that the Indian community today is much more diverse and vibrant than when my parents came to the United States. The Indian community is far broader and more expansive, and in a way, if anything this case speaks to the strength of the community, not its weakness.