Gupta leaves the federal court in New York on Friday. (AP)
Washington, June 18: There is a lesson for Indians in the Rajat Gupta case, in which one of the biggest Indian American success stories unravelled last week after the conviction of the former worldwide head of McKinsey on charges of securities fraud and conspiracy.
With Indian investments in the US growing “at an annualised rate of 53 per cent,” according to the White House, big corporate investors in America, who include names such as the Tatas and Mahindras, must be wary of fat cat lawyers here who are looking at them as new sources of big income.
Gupta’s cup of woes, which may well see him in jail by the end of this year, overflowed last week because of his high-profile, ultra-expensive lawyers, according to conversations this correspondent had with several prosecutors and other members of the American judicial fraternity.
Since prosecutors are officials of the state and members of the judicial fraternity cannot speak on record about a case that is not theirs, most of the conversations on which this assessment is based is off the record and without attribution.
Besides, lawyers are reluctant to openly criticise one of their own, but agreed to speak off the record not only because Gupta’s conviction is the biggest Wall Street case so far in terms of prestige, but also because of the widely held belief that this case will eventually become a case study in American law schools.
It is not widely known in India amid the cacophony of support for Gupta that he may have got off with a mere rap on the knuckles in March last year instead of a jury trial and conviction if only he had made a settlement with the Securities and Exchange Commission.
Initially, the SEC merely wanted to punish him administratively for leaking information to the convicted American investor of Sri Lankan origin, Raj Rajaratnam, the founder of the Galleon Group.
But Gupta decided to take on the SEC, the federal agency tasked with protecting investors, maintaining order in markets and facilitating capital formation in the US.
In what turned out to be a gross misstep, Gupta filed a case against the SEC alleging that he was singled out for treatment that differed from others in the investigations against Rajaratnam.
The SEC is super-sensitive about allegations of mala fide. In any case, government organisations here don’t like to be dragged to court because precedents that cases can set have the possibility of an avalanche of lawsuits undermining the very existence of those organisations.
So when Gupta filed his case against the SEC’s administrative action, the commission dropped its proceedings against the former head of McKinsey, who was also once a member of blue chip company boards such as Goldman Sachs and Procter & Gamble, to mention just two of his corporate feathers.
Gupta mistakenly believed he had won, but a few months later, acting typically like most government bodies here, the SEC went after Gupta with its full might. Criminal charges of leaking insider stock information to Rajaratnam were hauled to court in New York, which last week led to his conviction.
There is a virtual consensus among those who spoke to this reporter that Gupta’s lawyers, who are the only beneficiaries in his trial as it stands now, gave him wrong advice in filing a case against the SEC instead of appearing at its administrative hearing and facing its consequences, which would have been minor even if he had to plead guilty there instead of being dragged before a jury for trial.
Even with the benefit of doubt that the case against the SEC was Gupta’s idea, his lawyers did not prevent him from proceeding along that route. It was only logical that the commission would not back down before Gupta in the light of evidence against him that came out during Rajaratnam’s trial and a course open to his lawyers was to stop representing him if he insisted on going after the SEC.
A prominent New York lawyer colourfully compared Gupta’s lawsuit against the SEC’s administrative action to a road accident in which a drunken driver fatally hits a pedestrian and police charge him with driving a car with an expired registration. But the driver, in turn, files a case against the police challenging the citation ticket and as a result, the police comes back after the driver accusing him of driving while intoxicated and also slaps a murder charge caused by reckless driving.
Ravi Batra, a prominent New York lawyer, whose most recent success in a case involving India was in securing the dismissal of criminal charges against Krittika Biswas, the school-going daughter of an Indian diplomat in the Big Apple, was willing to be quoted on some aspects of the Gupta case.
His analogy of Gupta filing a lawsuit against the SEC’s administrative action and arguably inviting more trouble was as follows. “If you have done wrong, do not play the matador and wave a red rag against the bull in the arena.”
Responding to a suggestion that Gupta may have filed a case for dismissal of the SEC’s administrative proceedings because he was fully convinced of his innocence, Batra continued with his analogy. “Your wrong actions prevent you from being strong enough to avoid being gored by the bull in a fight.”
It is also not widely known in India that Gupta’s troubles are far from over or out of the way with his conviction last week in the criminal case. The SEC has a civil case charging him with insider trading that is coming his way. That case is expected to come up only after Gupta is formally sentenced in the criminal case on October 18.
The consequences of the civil case are unpredictable, according to the legal fraternity. But since he has already been found guilty of criminal charges, those convictions will automatically stick in the civil suit, they said. Unless Gupta is successful in an appeal.
Batra concluded that Gupta’s mistake was in not realising that “life is not a checkers game but that it is a chess game”. Checkers is the American version of English draughts.