Indians are eager to defend Rajat Gupta because we are too used to the powerful always getting away in India. Take a look at a short list
Rajat Gupta, for most Indians, was the ultimate success story. He had good looks, was well-educated (IIT-Delhi, Harvard Business School) and rose to the pinnacle of corporate glory when he became the first Indian to head the powerful McKinsey & Company, which calls itself “the trusted advisor to the world’s leading businesses, governments, and institutions.” As the CEO of McKinsey, this man was probably privy to more corporate secrets around the world than any other person. He certainly had easy access to every corporate and policy-maker in India, starting with the prime minister himself. Yet, when Mr Gupta was accused of insider trading, corporate India, which had felt privileged to rub shoulders with him, went into a defensive frenzy. The collective shock of Indians at the conviction of Rajat Gupta is not surprising. After all, we are used to an investigation and legal system that is easily manipulated by interpreting laws and enforcement actions to close cases, once powerful politicians and corrupt officials are ‘taken care of’. Those, who are truly honest, end up being ground by a slow, expensive and, often, corrupt judicial process that does not even allow them the luxury of speaking out.
There are innumerable examples of how the powerful always get away in India. In 1992, the enactment of a Special Court (Trial of Offences Relating to Transactions in Securities) Act ensured that some were carefully kept out of the net. ANZ Grindlays Bank, which credited cheques issued by various banks to the account of scam-accused Harshad Mehta, was untouched by the civil and criminal cases of the Special Court. It was permitted to enter into long-winded arbitration proceedings with State Bank of India (SBI) and the National Housing Bank (NHB). The Bank had infamously argued that crediting cheques to brokers’ accounts was ‘an accepted market practice’. One may argue that treating ANZ gently was done in the national interest, since India had just managed to avoid a default on external borrowings. The manoeuvre saved the Reserve Bank of India (RBI) from embarrassment. After all, NHB was a wholly-owned subsidiary and RBI deputy governors graced the SBI’s board.
After the Ketan Parekh scam in 2000, every corporate house that colluded with him in ramping up their own stock and lending him money borrowed from banks and institutions, or overseas, was let off. Zee Telefilms got away with a mere warning, despite detailed evidence including routing of funds through dubious overseas corporate bodies. Global Tele not only got away scot-free, but its founder Manoj Tirodkar managed to get into financial trouble again, in just a decade, after having persuaded banks to lend him over Rs4,000 crore for multiple telecom infrastructure companies. Ramesh Gelli, the founder of Global Trust Bank (GTB), which went bust after its shady deals with Ketan Parekh, has also not been punished. A shotgun merger of GTB with Oriental Bank of Commerce ensured that there was no public interest in ensuring Mr Gelli’s prosecution. Remember, nothing has ever happened to the Ambanis, despite investigations into a steady stream of scandals and dubious business dealings through the 1980s and 1990s. The Dinesh Dalmia case is most remarkable. He was allowed to strip DSQ Software, sell it off; among the buyers were Ramesh Vangal and Rajat Gupta and the entity was renamed Scandent Technologies. Mr Dalmia ran away to the US and was finally arrested only when he returned to India after a $130-million fraud in that country. SEBI fined him Rs630 crore, but we have no clue whether any money has been recovered.
The only insider trading indictments in India happened to the relatively small fry: Manmohan Shetty of Adlabs (after he closed his business), Arun Jain of Polaris Financial Technology (in a case dating back to 2000), or VK Kaul, a director of Ranbaxy and his wife, or JE Talaulicar of Tata Finance. Some, like Vakrangee Software, are strangely let off. If this is the scenario that we are naturally used to, it is no surprise that when Rajat Gupta gets a guilty verdict, instead of condemning the lapse of ethics in someone of his stature, we start hunting for a possible bias. He was charged because of the colour of his skin, or he is a ‘small fry’, or because he was an ‘outsider’? We know that is nonsense. In fact, both the judge, who sentenced him, and the jury seemed unhappy at having to pronounce him guilty, because of his otherwise exemplary achievements. It is important to remember that US regulators did not ‘go after’ Rajat Gupta. They were tapping the phones of Raj Rajarathnam when they hit upon his incriminating phone conversation.
Indeed, every system—whether a monarchy, a democracy or a dictatorship—does allow some influential people to get away and tends to over-react after a major crisis, in order to restore public confidence in the enforcement machinery. But the US justice system does not spare the rich or the famous, whether it is corporate fraud, drug abuse, insider trading or even shoplifting.
For every Wall Street insider who ostensibly got away, there are innumerable examples of people who were sent to jail after a swift and fair trial. Remember Ivan Boesky or Mike Milken? The high-flying corporate czars of WorldCom, Tyco, Enron Parmalat, Global Crossing and others, including their senior executives are serving prison sentences running up to 25 years and have coughed up hundreds of millions of dollars. Wasn’t Rajat Gupta watching?
The fact is that an Arthur Andersen was sunk by an Enron scandal in the US, but nothing has happened to PricewaterhouseCoopers in India, despite the massive Satyam Computers fraud where the chairman-founder confessed to cooking the books, while the accountants colluded.
In the US, a Bernie Madoff is serving out a 150-year prison sentence when it was found that his wealth management scheme was just a Ponzi. In India, on 31st August, the Supreme Court ordered two Sahara companies to pay up an astonishing Rs25,000 crore to investors. The stunning judgement raised questions about the very existence of Sahara’s claimed investors. Yet, no other investigation agency has sought to probe the Sahara group’s shadowy businesses. And, there is stunning silence from every single political party, cricketer, film star and celebrity opinion-leaders who are happy members of the Sahara pariwar. Most of them continue to earn and benefit from the group’s enormous money power. Television channels, which are the biggest beneficiaries, don’t go beyond reporting regulatory actions or court orders.
The capital market regulator is fighting a lonely battle to act on the apex court’s ruling with no apparent help from the ministry of corporate affairs. As one investor wrote to us, Sahara itself calmly continues to advertise its Q-shop retail network—with a galaxy of cricketing stars endorsing it—and its agents continue to persuade investors to switch from one shady scheme to another. The nauseating defence of Nitin Gadkari and Robert Vadra’s fast growing business empires funded by corporate largesse indicates that nothing will change in a hurry. After all, every politician is now a ‘social entrepreneur’ with a vast web of companies involved in extremely profitable sectors such as realty, infrastructure development, power, education and health.
It is plainly deceitful to say that the American system is no better. Despite its many flaws and ridiculous system of rewarding corporate chiefs and wall-street traders, America has a fairer and more efficient justice delivery system than we do; more often than not, it puts the rich and the powerful behind bars, at least when they are foolish enough to get caught.
Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at[email protected]