90 THE CARAVAN
insidestory· books
or family members unless there was
a conflict of interest that would take
away work that the firm might other-
wise do. Whatever the case, I just didn’t
want to get into this with Raj—it was
their business, not mine.”
Contrary to his account in the book,
however, it was not Rajaratnam who
called him, but Gupta’s secretary who
called Rajaratnam, asking if he was free
to speak to Gupta. When Rajaratnam
mentioned the rumours, Gupta went on
to answer his doubts by not only clari-
fying that it was “a big discussion at the
board meeting,” but also by divulging
how the board was split in opinion, and
its motivations behind the purchase.
He then confirmed the two companies
being considered for acquisition—Wa-
chovia and AIG.
They almost disconnected, before
Gupta himself mentioned Anil Kumar.
He seemed unhappy of late, Gupta said,
which set Rajaratnam off on a lengthy
complaint about their mutual friend’s
greed.
Before Kumar had begun accepting
money for tips to Rajaratnam, McKin-
sey had solicited Galleon as a client in
the wake of its success as a hedge fund.
Rajaratnam ignored their repeated
emails, pulling Kumar aside one day to
offer him half a million dollars for his
exclusive “advice.” As these payments
increased, so did the amount of confi-
dential information Kumar passed him.
In 2006, Rajaratnam was one of the
few on Wall Street to anticipate a deal
involving the microchip companies
AMD and ATI. Kumar was AMD’s
McKinsey consultant, and Rajaratnam
called him to express his gratitude,
wanting to give him a million dollars as
a bonus for this tip. Following Rajarat-
nam’s instructions, Kumar had set up a
Swiss bank account for a shell company
that would transfer the payments to a
Galleon account under the name of Ku-
mar’s housekeeper.
In the 29 July phone call, Rajaratnam
alluded to such payments not once, but
twice. The second time, he spelled it
out. “Now, for the last three or four... I
mean, four or five years, I’ve been giv-
ing him a million bucks a year, right?”
“Yeah, yeah,” Gupta chimed.
“After taxes, offshore cash.”
“Yeah, yeah.”
After they finished discussing Ku-
mar, Gupta asked Rajaratnam if he
had two more minutes. Despite his
supposed anger with Rajaratnam,
whose treachery in the Voyager mat-
ter had been thoroughly established
by then, Gupta wanted some career
advice—on whether he should accept a
board position at the consultancy firm
Kohlberg Kravis Roberts. Rajaratnam
offered Gupta a well-rounded opinion,
considering such aspects as managing
the expectations of existing business
partners and whether he would enjoy
spending his time on KKR amidst his
various other commitments.
Rajaratnam added that Galleon
International could be one such com-
mitment, to which Gupta quickly inter-
jected, “By the way, I want us to keep
having that dialogue as to how I can be
helpful in Galleon International. By the
way, not Galleon International, Galleon
Group.”
“Galleon Group, right.”
“I mean, you’ve given a position in
Galleon International. That’s good
enough.”
“Yeah, but you know what, I’m now
at a point where in the last couple of
years, I’m building, right?”
“ Ye a h .”
“Rather than just making returns,
and not building, right?”
“Right. Right.”
Sounding more than a little dismiss-
ive, Rajaratnam steered the conversa-
tion back to career advice.through the 29 july phone call, the
prosecution was able to firmly cement
two things. First, his claims of careless-
ness notwithstanding, Gupta surely
broke the law by parting with confi-
dential information about the Goldman
Sachs board meeting. Bill George, a
Goldman director, testified that the
information passed on was confiden-
tial; Gupta had violated his fiduciary
duty to the board. The first condition to
establish insider trading had therefore
been met.
Second, the prosecution was able to
establish Gupta’s ability to receive some
benefit from having passed on this infor-
mation. Although he cites the millions
of dollars in payment that Rajaratnam’s
other informants received, and the totalabsence of any such compensation in his
own financial records, as proof of his
wrongful conviction, here was a conver-
sation with Rajaratnam acknowledging
Gupta’s position at Galleon Internation-
al, and Gupta openly angling for one at
Galleon Group. Any profits that Galleon
made, therefore, would have been per-
sonally beneficial to him. The prosecu-
tion also furnished notes from the diary
of one of Gupta’s financial advisors, with
one entry stating, “Chairman, Galleon
International. $1.3bn, owns 15% of it.
Invests in long/short equity in Asia, en-
titled to performance fees.”
However, as Rajaratnam’s tone dur-
ing the phone call indicated, he proba-
bly never intended to fulfil his promise,
so the prosecution was never able to
prove that Gupta owned part of Gal-
leon. But it was able to prove an expec-
tation of ownership, of future business
together, amounting to an expectation
of personal benefit. This, therefore, met
the second condition to prove insider
trading.
In 2012, Rajat Gupta’s trial made his-
tory for producing the first ever convic-
tion for insider trading based on largely
circumstantial evidence. In his appeal,
Gupta challenged his conviction based
on two errors he accused the trial court
of making. First, the court had admit-
ted the wiretaps of phone calls on 23
September and 23 October, in which
Rajaratnam had confirmed to other
Galleon traders that he had a source
on the Goldman Sachs board. Gupta’s
lawyers claimed that the statements of
other Galleon traders were inadmis-
sible hearsay because those traders
were not part of any alleged conspiracy
involving Gupta and Rajaratnam, or
because their statements had not been
made to further the conspiracy. Second,
Gupta claimed that the court had ex-
cluded evidence proffered by Gupta in
his defence.
The second circuit disagreed with
both reasons. It agreed with the trial
court’s decision that the wiretaps were
admissible, since the prosecution had
established that the conversations were
in furtherance of a conspiracy, of which
Gupta and Rajaratnam were not the
only members. Also, Rajaratnam had
incriminated himself in the phone calls
by revealing that he had received tips