Millennium Post

Indian fat cats and the buddy system

It is indeed typical of India, where even the most profligate of men chant verses of the Gita as a morning ritual, to have got its top businessmen to launch a website,, to defend Rajat Gupta, the Indian American business mandarin. Gupta has been held guilty by a New York court of insider trading and conspiracy and is awaiting a sentence that may be a total of 25 years behind the bars. Gupta is a Delhi boy who broke through the glass ceiling of corporate America; he became the first non-white chief of McKinsey, the powerful consultancy, and made his way into the boardrooms of top-of-the line companies, like investment bank Goldman Sachs and shampoo-detergent giant P&G. To come with the territory were the political connections. He is a personal friend of the Clintons and was a regular at President Barack Obama’s dinners. It is no wonder, therefore, that he has armies of powerful allies in India’s corridors of power.

The 'friends of Rajat' are a galaxy of Indian business tycoons, including CII chief Adi Godrej who often airs his views on public morality. The group is determined to defend their buddy-in-distress regardless of the fact that such warmth of fellow-feeling should have been tempered with at least a modicum of ethical judgment. What the Indian fat cats obviously rubbish is the fact that a federal jury in the US has found their friend guilty of leaking price sensitive information regarding Goldman Sachs, seconds after attending its board meeting, to his chum Raj Rajaratnam of the hedge fund Galleon, who promptly bought and sold truckloads of Goldman Sachs shares and made millions of dollars. The prosecution has so far not accused Gupta of having taken his slice, but that is so far. Rajaratnam is already serving 11 years in prison. 

In this context, Godrej’s words that 'my admiration for Rajat remains as strong as ever' sounds both cloying and motivated. A possible motive is that the weighty testimonials from India may influence the twelve good men and true who’d sit again in October to decide on Gupta’s punishment. Gupta’s lawyer has announced that his client would go in appeal on the verdict and the punishment, but American higher courts seldom overturn judgments of the trial courts. In that way, it is very different from India where such overturning is nineteen to the dozen.

Godrej’s assertion that he’ll continue to support the fraudster convicted in the US  seems born not just out of closed-door buddy system in the secluded world of the super-rich. It is also a social truth. The very concept of 'insider', and the duties and responsibilities that go with him, is alien to Indian businesses, even though it is all inscribed in the SEBI (Prohibition of Insider Trading) Regulation 1992. The efficacy of a law does not merely on its being explicit; it must have public acceptance too. In a nation of unruly people, there will be too many jaywalkers on the roads, no matter how strict the rules of the roads are. In India, the real tipsters are most often company owners themselves. They were quick to discover that information is the coin of the realm. Since the 1970’s, it is this coin that enabled the rising class of businessmen to buy up a subservient plutocracy of powerful people— legislators, bureaucrats, media persons, even a section of the judiciary. India was won with 'unpublished price sensitive information' (UPSI), which is indeed the currency of insider trading. For the CII chief, it is naturally hard to believe that somebody may be put behind bars for what in India is not even parking office, whatever the law books may write.

Of course the Indian law on insider trading looks impressive but, as with most institutions of the country, the devil is in the detail. In March 2008, the surveillance wing of SEBI noted sharp swings in the share price of the company Orchid Chemicals. An investigation began. It was found that a former independent director of Ranbaxy, who had the privileged information that a subsidiary of the company would make a strategic investment in Orchid, had funded his wife to buy 50,000 Orchid shares in advance, to be sold after the information becoming public and priced in.

SEBI slapped a fine on the person, which he has disputed it on the ground that since he was not a 'connected' person with access to privileged information of Orchid Chemicals, how he could be punished for Orchid’s insider trading? And that shows the conceptual difference between India and the western world about the offence of abuse of privileged information. In the US, the Ranbaxy director’s argument would not wash because such information is not narrowly defined there as limited to just the connected persons but is broadly defined by a breach of 'fiduciary responsibility' which is confined 'not necessarily to the shareholders of the company whose shares are traded' (US V. Hogan). Did Gupta get a portion of the profit made by Rajaratnam by trading in Goldman Sachs shares on his tip? It does not matter in the US as Gupta’s breach of fiduciary responsibility is proved.

SEBI is a toothless tiger but the finance ministry is accused of attempting now to peel off even its stripe. Last year, SEBI full-time member K M Abraham wrote to the Prime Minister that he was being threatened by a cabal in the finance ministry spearheaded by 'Omita Paul, advisor to the Finance Minister' to desist him from investigating a slew of cases concerning powerful business houses. The matter was obviously serious as the Prime Minister had to write to the Maharshtra Chief Minister (SEBI headquarters are in Mumbai) requesting him to arrange for the IAS officer’s personal safety. Can one think of a member of the US Securities and Exchange Commission (SEC) being bullied by the close aide of a US politician and still the same politician running for White House?
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