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Corporate Jun 17, 2013

The Billionaire’s Apprentice: Tracing Rajat Gupta’s Icarus-like fall

By Uttara Choudhury

New York: Financial journalist Anita Raghavan's book, The Billionaire's Apprentice, is a fascinating account of the takedown of Galleon founder Raj Rajaratnam and the self-destruction of Rajat Gupta, who had reached the highest echelons of corporate America.

Gupta, 64, who remains free on appeal, has vigorously maintained his innocence. In October last year, he was sentenced to two years in prison by a Manhattan federal court for passing on illegal tips to Rajaratnam.

In Raghavan's book Sri Lankan hedge fund billionaire Rajaratnam comes off as a boorish scoundrel. He not only assiduously worked a network of tipsters inside large companies but was a fraud, even in small things. Applying for permission to build a second kitchen in his New York flat, he cited his need to adhere "to Jewish traditions." This "seemed a stretch for a Hindu," notes Raghavan.

We learn that Rajaratnam did job interviews at a topless club and required male traders who made bad bets to wear lingerie to work the next day. "Galleon traders who made bets and lost would be required to spend the day wearing lingerie," says the book.

Book cover for Anita Raghavan's 'The Billionaire's Apprentice.'

Book cover for Anita Raghavan's 'The Billionaire's Apprentice.'

We have a much more nuanced portrait of Gupta, the now disgraced former head of McKinsey & Co and Goldman Sachs director.

"Rajat Gupta was an icon to the Indian community. He was different from many of the Indians in the community in that he was assimilated - he waltzed out effortlessly between India and America, business and philanthropy. And I think it was a great disappointment to many that someone of his stature fell so low," Raghavan told Utah Public Radio.

Until he was in his mid-50s, Gupta lived an exemplary life. His journalist father was a prominent freedom fighter and had been jailed by the British. He died when Gupta was 15. His mother was a teacher.

Gupta studied at the Indian Institute of Technology in Delhi and moved to the US in 1971 to study in Harvard Business School on a scholarship. Two years later, he joined the largely white, clubby McKinsey & Company. He lived frugally and saved to support his brother and sister back home in India. He owned two cheap shirts, "one to wash and one to iron for the next day". Within a year, he had sent enough money home for his siblings to build a house. In 1994, at the age of 45, Gupta became the first non-Westerner to lead the blue blooded consultancy firm.

How could Gupta get into business with a boorish trader who was known for giving Super Bowl parties filled with scantily clad women? Why would one of the most revered CEO's of his generation, who retired with a fortune worth $100 million, show such bad judgment. Raghavan's book suggests Gupta created pressures for himself by running with an elite circle of billionaires.

"While Gupta departed McKinsey with a fortune, he was now mingling with a crowd that included Bill Gates, Henry Kravis and Henry M Paulson Jr, then Goldman's chief executive, with whom he traveled to Indonesia to see the Komodo dragons. For many of these men, $100 million was not rich; it was simply the price to play. If Gupta wanted to compete on the same level as Stephen A. Schwarzman, who would go on to give $100 million to the New York Public Library, or Sandy Weill, whom he knew from the Weill Cornell Medical College board, he had to be a billionaire," says the book.

Raghavan recounts a lecture Gupta gave at Columbia University years before the Galleon scandal, where he acknowledged, "Yeah, I am driven by money. I think money is very seductive. However much you say that you will not fall into the trap of it, you do fall into the trap of it."

"Rajat Gupta in his career wanted to have what Raj Rajaratnam had, and it was the billions," said Raghavan at her book event in Asia Society.

What is sad about Gupta's Icarus-like fall is that the man obviously loves India and has worked hard after retiring from McKinsey to give back. He got corporate executives of major companies to donate millions to start the Indian School of Business (ISB) in Hyderabad. Gupta resigned as chairman of the board of directors at ISB to save the school embarrassment. In 2001, Gupta helped raise $1 billion in relief funds for the victims of the Gujarat earthquake.

Raghavan notes that Indians on Wall Street feel whirling emotions as the insider trading scandal took down some of the most admired names in the diaspora. Near the end of her book she quotes David Ben-Gurion, Israel's first prime minister: "For a country to be "counted among the nations of the world, it has to have its own burglars and prostitutes."

"We as a community have arrived in America. We are finally large enough in number, we are economically significant, and as a result we now have our own crime that will be prosecuted. There will be episodes like this from time to time. If anything, to me it's a celebration of the community's strength rather than its weakness," said Raghavan.

Raghavan's book is subtitled The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund.How fitting then that Galleon would ultimately be brought down by two brilliant Indians: Sanjay Wadhwa, a top enforcement official in the Manhattan office of the SEC, and Preet Bharara, the US attorney for the Southern District of New York.

Gupta is a big prize for Bharara in fighting white collar crime as the standard defendants in insider trading cases are low-level traders and analysts on Wall Street. Bharara, 42, played a key role in the largest mob roundup in recent FBI history by using wiretaps against the Gambino and Colombo crime families.

Anil Kumar, who avoided jail by helping convict Rajaratnam and Gupta, is rebuilding a career in India. The author speculates that India can offer a second chance to Gupta.

"I was talking to someone who had just returned from India, a Westerner, who remarked that it was interesting that while the view in the US of Rajat Gupta was one of great disappointment, he said he could very well see Rajat Gupta return to India as a hero - someone who had a noble career in the United States and was derailed by a not fully fair US justice system," Raghavan told the Asia Society Blog.

"It's no secret that corruption is an endemic problem at the highest levels in India and many Indian businessmen view the charges against Gupta as a speeding ticket - nothing more. Just like Anil Kumar has found a place in India working for his fellow Doon school chum, Analjit Singh, at Max India, I could easily see Gupta coming back and re-establishing himself," she added.

by Uttara Choudhury

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