What the Hell Was Rajat Gupta Thinking?

A respected leader of American capitalism just scored an own goal.  It couldn't come at a worse time.

Conservatives know that one of the challenges we face is that every now and then, something happens which makes the left's narrative of American capitalism -- easily reducible to a sound bite on MSNBC --  look like it's right.  Whenever that happens, America's job-creators and investors lose -- big time.

It happened after the S&L bust.  It happened after Enron and WorldCom.  It happened after the Crash of '08 -- and the exposure of what was going on during the Bubble in headliner books by Michael Lewis, Matt Taibbi, and Gretchen Morgenstern, among others.  Each time, there was a new wave of federal laws and regulation.

It just happened again.

At The Nation, they must be high-fiving because the left now has its Exhibit "A."  Wednesday, American business titan Rajat K. Gupta was named in a six-count federal indictment, charging him with one count of conspiracy and five counts of securities fraud.  It's not going to matter, either, that he's on record as a big contributor to Barack Obama, Hillary Clinton, John Kerry, Chris Dodd, the Democratic Congressional Campaign Committee, and a host of other Democrats.

Spin away, lads, but it's not gonna work.  Even if there are -- and there probably are -- pictures of the Archangel Barack and all the rest shaking hands with Rajat Gupta.

Gupta is no ordinary Wall Street sharpie.  He'll soon be the poster boy for Occupy Wall Street, President Obama's critique of American business, and the wet dream of every democratic socialist in America.  The indictment prompted a rare cri de couer from Walter Russell Mead at the American Interest.

I join in that sentiment.

Because the Gupta indictment -- be he Democrat (which he plainly is) or Republican -- shines a light on the ethics of America's business elite.  And that is what's going to matter.  

Just look at Gupta's credentials:

  • Harvard MBA;
  • former global CEO, McKinsey & Co.;
  • former director, Goldman Sachs; and
  • former director, Proctor & Gamble.

There's more personal and business information here.

At first blush, you might mistake Gupta for a fully paid-up member of what Tom Wolfe in Bonfire of the Vanities called the Masters of the Universe.  That would be wrong.  The protagonist of that famous 1980s novel was a Wall Street bond trader.  Gupta, by virtue of his position with McKinsey & Co. and his Goldman and P&G directorships, qualified as something much more.

He was one of the guys the Masters of the Universe worked for.

As Walter Russell Mead says, as CEO of McKinsey & Co., Gupta was one of the most trusted men in global capitalism.  He sat at the Ground Zero of American finance and consulting -- the two biggest growth industries of our service economy.  He made piles of money too.

But, according to the United States Attorney and a grand jury sitting in the Southern District of New York, there's admissible, credible evidence to show probable cause to believe that Gupta's also a crook.

The filing of an indictment (rather than a simple information, predicate to a guilty plea) means that Gupta intends to fight too.  At his arraignment, Gupta did exactly that.  He pleaded not guilty to all charges and posted a $10-million bond.  He must also surrender his passport.

Gupta's lawyer is trumpeting the fact that, apparently, Gupta himself never traded.

Plainly, there's more to come, including the defense's pre-trial motions.  But the indictment is highly detailed.  The government obviously has a wealth of wiretap evidence.  All of it was apparently ruled admissible in the earlier trial of Gupta's co-conspirator, Galleon hedge fund CEO Raj Rajaratnam.

So, if Gupta's got a defense, it must be a good one.  Rajaratnam just got 11 years -- a record sentence for insider trading.  It's a reasonable bet that ol' Raj has rolled over on his former pal.  The government will have to make that and any exculpatory evidence available to the defense before trial.

So, there will be a further opportunity for Gupta to negotiate a plea.

But, as appears, this defendant is a prime bullock, not yet meat on the hook, but ready for slaughter and crying out to be made an example of.  He will be, too, if he's convicted.  If Rajat K. Gupta puts the court and the government to the time, effort, and expense of a trial and loses, he can expect no mercy at sentencing.

None.  And, therefore, as a former defense lawyer, I grit my teeth and wish him well.

Why should conservatives care about this big Democratic contributor?  Because what he allegedly did tends to confirm the left's narrative.  Insider trading by someone at Rajat Gupta's level strikes at the heart of American capitalism: the belief (admittedly, often an illusion) that markets are fair and that crooks eventually get caught.  To use an old expression, it frightens the horses.

Call the honor roll of American inside traders in your own mind and you'll see what I mean.  It all smacks of the late Leona Helmsley's telling her maid that "only little people pay taxes."

Yeah.  And, therefore, if convicted, Rajat Gupta should be shunned and loudly condemned by his peers.  Indeed, he must be condemned if found guilty -- no less than the Enron and WorldCom execs or the guilty parties in the foreign corrupt payments scandal or the electrical price-fixing cases of earlier times.

Both H.L. Mencken and John O'Hara thought that Prohibition -- now the subject of an award-winning HBO series, Boardwalk Empire -- had destroyed American public and private morals.  Prohibition, they wrote, made the average American a criminal and taught disrespect for the law.  When the electrical price-fixing cases, the game show scandals, and the cheating by West Point cadets all exploded around 1960, O'Hara blamed it on the Noble Experiment.

Insider trading, unlike bootlegging or Bill Clinton's admitted perjury about the Lewinsky affair, has never gained that public acceptance.

Nor should it.  There are places in this world -- even in the capitalist world -- where insider trading is not a crime.  It's considered a form of executive compensation: a little extra fillip for having gotten to the top of the greasy pole and being "in the know."  But, in the Anglo-Saxon world, ever since there've been corporations and stock certificates, insider trading has been stealing.

And, even before the financial collapse of 2008 which caused this Great Recession, that's what American juries have thought too.

The federal statute criminalizing insider trading dates from 1934.  It was passed by the New Deal Congress in the wake of the last great stock market collapse.  But insider trading -- as a form of self-dealing by a corporate fiduciary -- was actionable at common law much earlier.  Yet, it persists.

Just as with perjury -- i.e., lying under oath -- another developing trend in American society (see Clinton, Bill; James Stewart's book, Tangled Web: How False Statements Are Undermining America, from Martha Steward to Bernie Madoff; and Sissela Bok's classic Lying: Moral Choice in Public and Private Life), the crime of insider trading is a recurring problem.  Although outlawed at the federal level, as I say, in 1934, the feds didn't go after it until the Texas Gulf Sulphur cases in the mid-'60s.  During the takeover craze of the '80s, there was a wave of prosecutions of lawyers, paralegals, financial printers, and others.  Then Rudy Giuliani nailed Ivan Boesky and his ring, also going after top people at senior Wall Street firms and others.

Now this: like Boesky Day and Enron Day and Lehman Day, Gupta Day will persist in American business history.

So, thank God that Rajat K. Gupta is a big Democratic donor.  And, especially, that he gave $2,500 to the Archangel Barack in the 2008 election.  But it's not going to matter.

This is bad.

A respected leader of American capitalism just scored an own goal.  It couldn't come at a worse time.

Conservatives know that one of the challenges we face is that every now and then, something happens which makes the left's narrative of American capitalism -- easily reducible to a sound bite on MSNBC --  look like it's right.  Whenever that happens, America's job-creators and investors lose -- big time.

It happened after the S&L bust.  It happened after Enron and WorldCom.  It happened after the Crash of '08 -- and the exposure of what was going on during the Bubble in headliner books by Michael Lewis, Matt Taibbi, and Gretchen Morgenstern, among others.  Each time, there was a new wave of federal laws and regulation.

It just happened again.

At The Nation, they must be high-fiving because the left now has its Exhibit "A."  Wednesday, American business titan Rajat K. Gupta was named in a six-count federal indictment, charging him with one count of conspiracy and five counts of securities fraud.  It's not going to matter, either, that he's on record as a big contributor to Barack Obama, Hillary Clinton, John Kerry, Chris Dodd, the Democratic Congressional Campaign Committee, and a host of other Democrats.

Spin away, lads, but it's not gonna work.  Even if there are -- and there probably are -- pictures of the Archangel Barack and all the rest shaking hands with Rajat Gupta.

Gupta is no ordinary Wall Street sharpie.  He'll soon be the poster boy for Occupy Wall Street, President Obama's critique of American business, and the wet dream of every democratic socialist in America.  The indictment prompted a rare cri de couer from Walter Russell Mead at the American Interest.

I join in that sentiment.

Because the Gupta indictment -- be he Democrat (which he plainly is) or Republican -- shines a light on the ethics of America's business elite.  And that is what's going to matter.  

Just look at Gupta's credentials:

  • Harvard MBA;
  • former global CEO, McKinsey & Co.;
  • former director, Goldman Sachs; and
  • former director, Proctor & Gamble.

There's more personal and business information here.

At first blush, you might mistake Gupta for a fully paid-up member of what Tom Wolfe in Bonfire of the Vanities called the Masters of the Universe.  That would be wrong.  The protagonist of that famous 1980s novel was a Wall Street bond trader.  Gupta, by virtue of his position with McKinsey & Co. and his Goldman and P&G directorships, qualified as something much more.

He was one of the guys the Masters of the Universe worked for.

As Walter Russell Mead says, as CEO of McKinsey & Co., Gupta was one of the most trusted men in global capitalism.  He sat at the Ground Zero of American finance and consulting -- the two biggest growth industries of our service economy.  He made piles of money too.

But, according to the United States Attorney and a grand jury sitting in the Southern District of New York, there's admissible, credible evidence to show probable cause to believe that Gupta's also a crook.

The filing of an indictment (rather than a simple information, predicate to a guilty plea) means that Gupta intends to fight too.  At his arraignment, Gupta did exactly that.  He pleaded not guilty to all charges and posted a $10-million bond.  He must also surrender his passport.

Gupta's lawyer is trumpeting the fact that, apparently, Gupta himself never traded.

Plainly, there's more to come, including the defense's pre-trial motions.  But the indictment is highly detailed.  The government obviously has a wealth of wiretap evidence.  All of it was apparently ruled admissible in the earlier trial of Gupta's co-conspirator, Galleon hedge fund CEO Raj Rajaratnam.

So, if Gupta's got a defense, it must be a good one.  Rajaratnam just got 11 years -- a record sentence for insider trading.  It's a reasonable bet that ol' Raj has rolled over on his former pal.  The government will have to make that and any exculpatory evidence available to the defense before trial.

So, there will be a further opportunity for Gupta to negotiate a plea.

But, as appears, this defendant is a prime bullock, not yet meat on the hook, but ready for slaughter and crying out to be made an example of.  He will be, too, if he's convicted.  If Rajat K. Gupta puts the court and the government to the time, effort, and expense of a trial and loses, he can expect no mercy at sentencing.

None.  And, therefore, as a former defense lawyer, I grit my teeth and wish him well.

Why should conservatives care about this big Democratic contributor?  Because what he allegedly did tends to confirm the left's narrative.  Insider trading by someone at Rajat Gupta's level strikes at the heart of American capitalism: the belief (admittedly, often an illusion) that markets are fair and that crooks eventually get caught.  To use an old expression, it frightens the horses.

Call the honor roll of American inside traders in your own mind and you'll see what I mean.  It all smacks of the late Leona Helmsley's telling her maid that "only little people pay taxes."

Yeah.  And, therefore, if convicted, Rajat Gupta should be shunned and loudly condemned by his peers.  Indeed, he must be condemned if found guilty -- no less than the Enron and WorldCom execs or the guilty parties in the foreign corrupt payments scandal or the electrical price-fixing cases of earlier times.

Both H.L. Mencken and John O'Hara thought that Prohibition -- now the subject of an award-winning HBO series, Boardwalk Empire -- had destroyed American public and private morals.  Prohibition, they wrote, made the average American a criminal and taught disrespect for the law.  When the electrical price-fixing cases, the game show scandals, and the cheating by West Point cadets all exploded around 1960, O'Hara blamed it on the Noble Experiment.

Insider trading, unlike bootlegging or Bill Clinton's admitted perjury about the Lewinsky affair, has never gained that public acceptance.

Nor should it.  There are places in this world -- even in the capitalist world -- where insider trading is not a crime.  It's considered a form of executive compensation: a little extra fillip for having gotten to the top of the greasy pole and being "in the know."  But, in the Anglo-Saxon world, ever since there've been corporations and stock certificates, insider trading has been stealing.

And, even before the financial collapse of 2008 which caused this Great Recession, that's what American juries have thought too.

The federal statute criminalizing insider trading dates from 1934.  It was passed by the New Deal Congress in the wake of the last great stock market collapse.  But insider trading -- as a form of self-dealing by a corporate fiduciary -- was actionable at common law much earlier.  Yet, it persists.

Just as with perjury -- i.e., lying under oath -- another developing trend in American society (see Clinton, Bill; James Stewart's book, Tangled Web: How False Statements Are Undermining America, from Martha Steward to Bernie Madoff; and Sissela Bok's classic Lying: Moral Choice in Public and Private Life), the crime of insider trading is a recurring problem.  Although outlawed at the federal level, as I say, in 1934, the feds didn't go after it until the Texas Gulf Sulphur cases in the mid-'60s.  During the takeover craze of the '80s, there was a wave of prosecutions of lawyers, paralegals, financial printers, and others.  Then Rudy Giuliani nailed Ivan Boesky and his ring, also going after top people at senior Wall Street firms and others.

Now this: like Boesky Day and Enron Day and Lehman Day, Gupta Day will persist in American business history.

So, thank God that Rajat K. Gupta is a big Democratic donor.  And, especially, that he gave $2,500 to the Archangel Barack in the 2008 election.  But it's not going to matter.

This is bad.

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