Another executive idiot

Azam Ahmed, Peter Lattman, and Ben Protess have an article in The New York Times about the fall of Rajat Gupta:

Federal prosecutors are expected to file criminal charges against Rajat K. Gupta, the most prominent business executive ensnared in an aggressive insider trading investigation, according to people briefed on the case. The case against Gupta, 62, who is expected to surrender to FBI agents soon, would extend the reach of the government’s inquiry into America’s most prestigious corporate boardrooms. Most of the defendants charged with insider trading over the last two years have plied their trade exclusively on Wall Street.
The charges would also mean a stunning fall from grace of a trusted adviser to political leaders and chief executives of the world’s most celebrated companies. A former director of Goldman Sachs and Procter & Gamble and the longtime head of McKinsey & Company, the elite consulting firm, Gupta has been under investigation over whether he leaked corporate secrets to Raj Rajaratnam, the hedge fund manager who was sentenced this month to eleven years in prison for trading on illegal stock tips.
While there has been no indication yet that Gupta profited directly from the information he passed to Rajaratnam, securities laws prohibit company insiders from divulging corporate secrets to those who then profit from them.
The case against Gupta, who lives in Westport, Connecticut, would tie up a major loose end in the long-running investigation of Rajaratnam’s hedge fund, the Galleon Group. Yet federal authorities continue their campaign to ferret out insider trading on multiple fronts. This month, for example, a Denver-based hedge fund manager and a chemist at the Food and Drug Administration pleaded guilty to such charges.
A spokeswoman for the United States attorney in Manhattan declined to comment, but Gary P. Naftalis, a lawyer for Gupta, said in a statement: “The facts demonstrate that Mister Gupta is an innocent man, and that he acted with honesty and integrity.”
Gupta, in his role at the helm of McKinsey, was a trusted adviser to business leaders that included Jeffrey R. Immelt of General Electric and Henry R. Kravis of the private equity firm Kohlberg Kravis Roberts & Company. A native of Kolkata, India, and a graduate of the Harvard Business School, Gupta has also been a philanthropist, serving as a senior adviser to the Bill & Melinda Gates Foundation. Gupta also served as a special adviser to the United Nations.
His name emerged just a week before Rajaratnam’s trial, when the Securities and Exchange Commission filed an administrative proceeding against him. The agency accused Gupta of passing confidential information about Goldman Sachs and Procter & Gamble to Rajaratnam, who then traded on the news.
The details were explosive. Authorities said Gupta gave Rajaratnam advance word of Warren E. Buffett’s $5 billion investment in Goldman Sachs during the darkest days of the financial crisis, in addition to other sensitive information affecting the company’s share price.
At the time, federal prosecutors named Gupta a co-conspirator of Rajaratnam, but they never charged him. Still, his presence loomed large at Rajaratnam’s trial. Lloyd C. Blankfein, the chief executive of Goldman, testified about Gupta’s role on the board and the secrets he was privy to, including earnings details and the bank’s strategic deliberations.
The legal odyssey leading to charges against Gupta could serve as a case study in law school criminal procedure class. He fought the SEC’s civil action, which would have been heard before an administrative judge. Gupta argued that the proceeding denied him of his constitutional right to a jury trial and treated him differently than the other Rajaratnam-related defendants, all of whom the agency sued in federal court.
Gupta prevailed, and the SEC dropped its case in August, but it maintained the right to bring an action in federal court. The agency is expected to file a new, parallel civil case against Gupta as well. It is unclear what has changed since the SEC dropped its case in August. An SEC spokesman has declined to comment.The case could be a challenge for the government. Many of the defendants convicted of insider trading, including Rajaratnam, have been caught on wiretaps swapping secret information.
At Rajaratnam’s trial, the government played a recorded conversation between Gupta and Rajaratnam in July of 2008. On that call, Gupta divulged that Goldman was considering a purchase of either Wachovia or American International Group. Evidence that Rajaratnam traded on this information was never presented, however.
Two of the most incriminating calls played in court pertained to tips that the government said had come from Gupta. But those calls were conversations between Rajaratnam and his employees, which could make them inadmissible in a trial of Gupta.
In one call played for the jury, Rajaratnam told a colleague: “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.” In the other, Rajaratnam said to his trader: “I got a call saying something good is going to happen to Goldman.”
The SEC’s original case also outlined evidence that could potentially be used at trial. That includes Gupta  phone records of on 23 September 2008. That day, the Goldman board met via telephone to consider Buffett’s five billion dollar investment in Goldman.
“Immediately after disconnecting from the board call, Gupta called Rajaratnam from the same line,” the SEC filing says. A minute later, Galleon funds bought more than 175,000 shares of Goldman just before the market closed, the agency says, and later netted a $900,000 profit when the deal was announced.
Though he had an enviable résumé and earned millions of dollars a year at McKinsey, Gupta became fixated on the extraordinary wealth showered on hedge fund managers and private equity chiefs, according to trial testimony. Consultants are well paid, but the compensation pales in comparison to those Wall Street titans.
Around the time of his retirement in 2007, he and Rajaratnam helped start New Silk Route, a private equity firm focused on investments in India. Though Rajaratnam never had an active role in the firm, he and Gupta were good friends, having met through their philanthropic interests.
Gupta periodically visited Rajaratnam’s hedge fund, Galleon, on Madison Avenue and 57th Street in midtown Manhattan. The two would order Indian or Chinese takeout and kibitz in Rajaratnam’s office. Gupta became an investor in Galleon’s hedge funds.As part of his foray into Wall Street, Gupta took a senior adviser post at KKR, the firm co-founded by his friend Kravis. During Rajaratnam’s trial, prosecutors played a tape of the hedge fund manager gossiping with a friend about Gupta’s ambitions. “My analysis of the situation is he’s enamored with Kravis, and I think he wants to be in that circle,” Rajaratnam said. “That’s a billionaire circle, right?”

Rico says he still finds it hard to believe that anyone, much less weasels like Gupta, control so much money...