The ex-McKinsey head's future is now in the hands of the 12-member jury which is deliberating whether he was guilty of insider trading
Rajat K Gupta is remarkably poised for a man who, if convicted of criminal conspiracy and securities fraud, could spend up to 20 years in jail.
The 63-year-old ex-McKinsey head and former director on the boards of Goldman Sachs and Proctor & Gamble must have walked into meetings in a similar dark blue suit, silk tie and crisp white shirt.
But on May 29, at the US District Court in the southern district of New York in Manhattan, he and his defence team from Kramer, Levin, Naftalis & Frankel LLP are fighting the fight of his life. Gary P Naftalis, the law firm’s co-chair, is one of America’s top white-collar defence lawyers.
“Gupta is lucky to have Naftalis,” says Stephen Gillers, professor of law at New York University, who has known both Naftalis and the presiding judge, Jed S Rakoff, for years. Gupta needs all the luck he can get.
In a six-count indictment, the US Department of Justice charged that Gupta “joined in an agreement or understanding” with Galleon Group’s Raj Rajaratnan, who is serving an 11-year prison sentence and was fined $156 million, “to disclose inside information about Goldman Sachs, P&G, and the JM Smucker Company.”
Prosecutors named Michael Cardillo and Ian Horowitz co¬-conspirators. Cardillo, a former Galleon trader, pleaded guilty of criminal charges last year. Horowitz is not indicted. The names of four others have been withheld.
But unlike Rajaratnam’s trial, where prosecutors presented direct evidence through wiretapped conversations, Gupta’s case so far is built on circumstantial, suggestive evidence consisting of hearsay conversations, indirect witness testimony, emails, Galleon trade records and Gupta’s and Rajaratnam’s phone logs.
The case smacks a bit of Sherlock Holmes. For example, the indictment states that on September 23, 2008, Gupta took part via telephone in a special meeting of the Goldman board, which approved a $5 billion investment from Berkshire Hathaway. Approximately 16 seconds after that call, Gupta’s assistant called Rajaratnam and connected Gupta to the call. Four minutes later at 3:58 pm, two minutes before close of market, Galleon Tech Funds bought approximately 2,17,200 shares of Goldman common stock for approximately $27 million.
Legal experts say although such evidence is not direct, it’s powerful and compelling. “The evidence against him is unusually strong—direct phone contact almost immediately after a crucial board meeting, followed by an immediate trade,” says Lynn A Stout, professor at Cornell Law School.
“It is possible to prove a criminal case by circumstantial evidence. Success is dependent on the prosecutor’s ability to present a series of facts that have only one reasonable interpretation—namely, that the defendant, in fact, gave inside information so that someone else could trade on it,” says Thomas Lee Hazen, professor at the University of North Carolina (Chapel Hill) School of Law.
And that’s exactly what assistant US attorneys Reed Brodsky and Richard Craig Tarlowe, appearing for US attorney Preet Bharara, are trying to construct. Their task is to prove beyond a reasonable doubt, to the 12-member federal jury of New Yorkers, who will determine Gupta’s fate, that it was he who tipped off Rajaratnam.
“The prosecutors need to prove Gupta’s guilt beyond a reasonable doubt, which is the most difficult standard to meet in our court system. Because the government does not have a single wiretap of Gupta providing insider information, but has hundreds of hours of wiretaps, the defence had much to work with in suggesting to the jury that Gupta was wrongly accused,” says Barry Slotnick, a white collar defence lawyer at Buchanan Ingersoll & Rooney PC in New York. He is not associated with the case.
Naftalis is doing everything he can to convince the jury that the government has put the wrong man on trial. The defence strategy is four-fold. One: Plant doubt in the minds of the jury that Rajaratnam could have had any number of inside sources. Two: Thoroughly discredit certain witnesses as liars. Three: Weaken the prosecution’s evidence as hearsay. Four: Given Gupta’s personal net worth of $84 million, argue that he would not have risked his reputation for financial gains. At one point, the defence team indicated the possibility of Gupta taking the witness stand, but eventually decided against it.
“I would have been shocked if he had taken the stand. The best defensive strategy is often to merely raise an inkling of doubt in the minds of jurors, and leave jurors with the impression that the government didn’t meet its high burden,” says Todd Henderson, professor of law at the University of Chicago Law School. “In fact, Gupta’s confidence and smarts might work against him as a witness, as it would be easier to set traps for him. The defence does not want this case to be about Gupta. It wants it to be about whether the government lawyers did their job. By putting a defendant on the stand, he is subject to very intense cross-examination, and this can undermine him in front of the jury. If it turns into a battle of whom you believe, jurors might pick the government.” Instead, Naftalis chose to possibly humanise Gupta by bringing in Gupta’s daughter Geetanjali as a witness.
The tension is palpable among members of Gupta’s family. Waiting in the security line at the courthouse entrance, this Forbes India correspondent struck a conversation with a woman who said she was a member of Gupta’s family.