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The rise and fall of Rajat Gupta

Last updated on: October 31, 2011 11:22 IST

The rise and fall of Rajat Gupta

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From a man used to rubbing shoulders with the most powerful businessmen in the world, Rajat Gupta is now staring at a lengthy prison sentence.

Gupta, former head of management consultancy firm McKinsey and Company, pleaded not guilty on October 26 to insider trading charges.

The founder of the Indian School of Business in Hyderabad has been charged with five counts of security fraud and one of conspiracy, which together could get him 105 years in jail, with millions in fine.

Gupta has been accused of passing insider tips to founder of Galleon hedge fund Raj Rajaratnam, who has been jailed to 11 years for insider trading.

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Image: Rajat Gupta pleaded not guilty to insider trading charges.

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He served as corporate chairman, board director or strategic advisor to a variety of large and notable organizations, including Goldman Sachs, Procter and Gamble, American Airlines, The Gates Foundation, The Global Fund and the International Chamber of Commerce.

Gupta was born in Kolkata to Pran Kumari and Ashwini Kumar. His father was a journalist for Ananda Publishers.

His mother taught at a Montessori school. Gupta has three siblings.

When Gupta was five the family moved to New Delhi, where his father started the newspaper Hindustan Standard.

Gupta's father died when he was 16; his mother died two years later. Now an orphan, Gupta and his siblings "decided to live by ourselves. It was pretty unusual in those days".

He was a student at Modern School in New Delhi.

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Image: Gupta founded the Indian School of Business.

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He received a bachelor of technology degree in Mechanical Engineering from the Indian Institute of Technology, Delhi, in 1971, and an MBA from Harvard Business School in 1973, where he was named a Baker Scholar.

Gupta remarked that the first time he saw an airplane was when he flew from India to the United States to attend the business school.

He served for nearly a decade as managing director of McKinsey and Company over a 34-year career at the management consultancy.

He stepped down as managing director in 2003 and retired from active practice in 2007, becoming, like other retired senior partners, a "senior partner emeritus".

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Image: He studied at the Harvard School of Business.

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Gupta maintained an office, executive assistant, email and phone at McKinsey after retiring in 2007.

After McKinsey, Gupta also co-founded and chaired the private equity firm New Silk Route with Parag Saxena and Victor Menezes.

He was initially rejected by McKinsey because of inadequate work experience, a decision that was overturned after his Harvard Business School professor Walter J Salmon called Ron Daniel, then head of the New York office and later also the managing director of McKinsey, on Gupta's behalf.

Gupta began his career in New York before moving to Scandinavia to become the head of McKinsey offices there in 1981.

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Image: Gupta joined McKinsey and Company in 1973.

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The rise and fall of Rajat Gupta

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He did well in what was then considered a "backwater" area; this is where he first made his mark.

Elected senior partner in 1984, he became head of the Chicago office in 1990.

In 1994, he was elected the firm's first managing director born outside of the US, and re-elected twice in 1997 and 2000.

After completing three full terms (the maximum allowed, by a rule he had himself initiated) and nearly a decade as head of the firm, Gupta became senior partner again in 2003 and retired from McKinsey as senior partner emeritus in 2007.

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Image: He became the head of McKinsey in Scandinavia.

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Over a 34-year career at McKinsey, Gupta directed a number of projects aimed at helping companies develop new product/market strategies and reorganize for improved effectiveness and operations capabilities.

During Gupta's time as head of McKinsey, the firm opened offices in 23 new countries and doubled its consultant base.

While he was managing director, Gupta co-founded the Indian School of Business with friend and fellow senior partner Anil Kumar.

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Image: Anil Kumar was Gupta's friend and fellow senior partner.

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The school was ranked number 13 in the world by The Financial Times in its "Global MBA Rankings 2011".

Gupta and Kumar have both since resigned as chairman and executive board director respectively.

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 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.

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Image: It was alleged that Gupta provided information to Raj Rajaratnam.

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Coverage of the event noted that Kumar - who, like Gupta, had graduated from IIT, was a longtime highly-regarded senior partner at McKinsey, and had also co-founded the ISB - had already pleaded guilty to charges in the same case.

Gupta, Kumar, and Rajaratnam were all close friends and business partners.

When Goldman Sachs's CEO Lloyd Blankfein asked Gupta about his insider trading rumours breaking in the press, Gupta replied: "I wouldn't have had anything to do with that."

On March 1, 2011, the SEC filed an administrative civil complaint against Gupta for insider trading.

It is alleged that he illegally tipped Rajaratnam with insider information about Goldman Sachs and Procter and Gamble while serving on the boards of both companies.

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Image: Goldman Sachs's CEO Lloyd Blankfein.

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Rajaratnam, it is alleged, "used the information from Gupta to illegally profit in hedge fund trades. ... The information on Goldman made Rajaratnam's funds $17 million richer. ... The Procter and Gamble data created illegal profits of more than $570,000 for Galleon funds managed by others," the SEC said.

"After a (Goldman Sachs) board call ... Mr. Gupta is said to have hung up the phone and called Mr. Rajartnam 23 seconds later. The next morning, the SEC says, Galleon funds sold their Goldman holdings, avoiding losses of more than $3 million."

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Image: The SEC says Rajaratnam used the information to profit illegally.

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Gupta stepped down from the board of Procter and Gamble on March 1, 2011.

On March 7, 2011, he resigned from the boards of AMR Corp, American Airlines, Harman International and Genpact Ltd.

On March 10, 2011, Gupta stepped down as chair of the International Chamber of Commerce "until a satisfactory resolution of the case".

On March 15, he stepped down as chairman of the Public Health Foundation of India.

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Image: Gupta served on the board of Proctor and Gamble.

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On March 20, he resigned as chairman of the Indian School of Business, after some controversy at the school and in India.

On March 29, he stepped down as advisor to the Gates foundation.

By April 2011, he had resigned from every board chairmanship or membership.

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. He was released on $10 million bail (secured by his Connecticut house) on the same day.


Image: He has also resigned from the board of American Airlines.

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