Thursday, October 27, 2011

Rajat Gupta’s arrest shows many positives of the US legal system….

Rajat Gupta has been arrested on charges of insider trading in the US. He was a Director on the Boards of such iconic companies as Goldman Sachs and P&G and he allegedly passed on insider information (confidential information not available to the regular public) from these companies to his friend, Sri Lanka-born Wall Street hedge fund Galleon’s owner, Rajaratnam, who allegedly made some $60 million from the information. Rajat Gupta has been one of the most high-profile businessmen in the US – as Global Head of McKinsey for nine years, his reputation in the US was impeccable. And yet…..when the time comes for the law to act, it acts. Without fear or favor….

There are many noteworthy things that emerge from the arrest of Rajat Gupta. And before that, from the arrest of other influential business leaders like Rajaratnam and of course, Bernard Madoff in 2009.

The first noteworthy thing about the US is that irrespective of your social or economic status, the law is paramount. In the eyes of the law, Rajat Gupta is just another ordinary citizen; someone who allegedly violated the laws of the land – and possibly harmed the interests of millions of other citizens. He may know the President of the US, the topmost lawyers…..but the law doesn’t care for any of this…..

The second noteworthy thing is the speed with which action is taken. This is what Wikepedia has on Rajat’s case: On April 15, 2010, the Wall Street Journal reported that federal prosecutors in the United States were investigating Gupta's involvement in providing insider information to Galleon hedge-fund founder Raj Rajaratnam during the financial crisis,  in particular the $5 billion Berkshire Hathaway investment in Goldman Sachs at the height of the financial crisis in September, 2008. On March 1, 2011, the SEC filed an administrative civil complaint against Gupta for insider trading. On March 18, 2011 Gupta countersued the SEC (SDNY 11 Cv. 1900). In July 2011, Judge Rakoff refused to throw out the countersuit against the SEC and in August, Gupta and the SEC agreed to drop their respective actions against each other. In late September, 2011, The Wall Street Journal reported that federal prosecutors were "fully committed" to filing criminal charges and were "moving closer toward bringing" them. They had previously sparred over how, when, and whether to arrest or sue Gupta, in "a bitter dispute between federal prosecutors and securities regulators." On October 26, 2011 the United States Attorney's Office filed charges against Gupta. He was arrested in New York City by the FBI and pleaded not guilty. In just about 18 months, from the first hint of a conspiracy, the arrest was made….Rajaratnam’s trial took just 2 months. Rajat’s will also probably take just that much time. Contrast that with what happens in India!

The third noteworthy thing is that Rajat Gupta has been immediately given bail. Unlike in India, where the accused are put in jail forever (almost). This, in spite of our Supreme Court’s own policy of “bail, not jail”. In India, even the judiciary takes cognizance of the public mood and acts in response to that. It is entirely possible that Rajat Gupta is eventually proven “not guilty” and in that case, it would have been a good decision to release him on bail.

The fourth noteworthy thing is that everyone in the US fears the law. The fear of the law is such that Rajat Gupta is unlikely to try and influence any witnesses in the case. In our country, it can almost be assumed with certainty that the powerful accused will not only try and influence the witness; they will try and make the witness recant. The approach is: if it’s possible to buy the witness, but him/her out; if that doesn’t work, try some strong-arm tactics. If that doesn’t work, try and do some character assassination so as to discredit the witness; if that also doesn’t work, then it’s entirely within the realm of possibility that a witness may be bumped off. The powerful in India never lose…..the law bends to accommodate them. CEOs are arrested; not the promoters behind the companies. Not so in the US…..

The fifth noteworthy thing is that the media out there is much more mature than in India. While reporting on the case and the arrest and the trial in great detail, media in general will stop short of sensationalizing the matter. The media will not try the accused in the pages of the papers; or on prime time on TV. The media will desist from calling Rajat guilty before the trial is over; desist from building public opinion against him before the time comes. If this trial were happening in India, the person would have been assumed guilty the day he was arrested; not only that, the entire community of businessmen and professionals would be painted black by now….

The sixth noteworthy thing is that there will typically not be any stereotyping of Indians basis Rajat’s arrest. It’s not that “all Indians are corrupt; all indulge in insider trading; none of them can be trusted”…..In India, this typically happens. Rajat Gupta is just another accused and his arrest and possible conviction is not going to put any shadow of suspicion on other successful Indian CEOs.

And the last noteworthy thing that stands out is the cosmopolitan and plural nature of the US society. Rajat Gupta is being tried by Preet Bharara’s office – Preet Bharara is the US district attorney of New York – another Indian, appointed by Obama to this post. In the US, it doesn’t matter which country you come from!

The real truth is that while we may progress economically, we are still centuries away from a legal system as good as in the West. Hopefully we will one day evolve a system that will make the law paramount. A law that everyone – the accused, the media and the public at large – believes in…..

1 comment:

  1. not entirely black and white as you would want it to appear