The conviction of Rajat Gupta heralds the end of a remarkable series of cases
THE US Attorney’s office for the Southern District of New York has been happily updating a scoresheet covering insider-trading cases in the aftermath of the conviction of Rajat Gupta, a former head of McKinsey & Co and an ex-board member of Goldman Sachs and Procter & Gamble. The tally now reads 69 people charged since October 2009, 63 convictions achieved, five cases pending and one remaining defendant on the run.
It has been a stunning streak that largely, though not entirely, rests on the 2009 arrest of Raj Rajaratnam, the head of the once-prominent Galleon Group, who is currently serving a 11-year sentence. Such prosecutions are not straightforward. The conviction of Mr Gupta required the painstaking accumulation of trading records and phone calls as evidence; a number of witnesses, including a former McKinsey colleague of Mr Gupta’s who had already confessed to insider trading; and three wiretapped conversations.
One involved Mr Gupta explicitly providing insider information to Mr Rajaratnam about Goldman Sachs potentially buying AIG—although since neither a deal nor trading followed, this was not in itself illegal. The others included incriminating comments by Mr Rajaratnam that could seemingly refer only to Mr Gupta (whether this might be regarded as hearsay will doubtless be at the heart of an appeal).
Even so, the jury was still hesitant to convict. As the trial showed, Mr Gupta had in excess of $100m in personal assets. He had positions on the boards of some of America’s greatest companies and ties to numerous universities, and there seemed to be endless demand for his services. Given all this, said jurors after their dismissal, there was a mystery over his motives.
Their willingness to convict may well have been a product of three factors. The first were charts and price records that show how small pieces of transient information can produce staggering returns. The second may have been the instructions provided to the jurors by the court, allowing them to see gains as criminal if the defendant realised merely a “modest” benefit from participating in a scheme. The third was a sense that normal motives did not apply: much of the testimony in the trial was grubby stuff about endless efforts to use contact books to figure out how to raise capital or elicit tips on what was making money. Whatever was gleaned was never enough.
Prosecutors are cagey about discussing whether there are many more charges to be mined from Mr Rajaratnam’s network. The case of the one defendant still at large, Deep Shah, a former employee of Moody’s, a ratings agency, is another Galleon-related case. Mr Gupta’s attorney, Gary Naftalis, argued that the information said to have been passed on to Mr Rajaratnam from Mr Gupta was actually from other Goldman employees. Even if this line of defence was more than just a smokescreen, the ties to Mr Rajaratnam are inevitably finite. Every network has its limits. If the numbers on the prosecutors’ score-sheet are to continue growing, another spider, along with a web, is needed.