Rajat Gupta, the business titan charged today with insider-trading by the SEC, was at the center of Wall Street—and the crimes he has been accused of committing allegedly occurred at the very heart of Wall Street as well.
Gupta was a managing director at McKinsey, arguably the most famous and prestigious consulting firm in the world. He later became an independent director at Goldman Sachs —arguably the most famous and prestigious investment bank in the world—in which role he is said to have engaged in massive insider trading regarding a huge cash infusion from Warren Buffet, who is arguably the world's most famous investor.
The alleged crime is astonishingly brazen, as my colleague John Carney reports:
"The SEC says Gupta tipped Rajaratnam about Warren Buffett’s Berkshire Hathaway’s $5 billion investment in Goldman and Goldman’s upcoming public equity offering before that information was publicly announced on Sept. 23, 2008. Gupta allegedly called Rajaratnam immediately after the board conference call, just a few minutes before the market closed. Rajaratnam must have been prepared to move, because within one minute he had arranged for Galleon funds to purchase more than 175,000 share of Goldman, according to the SEC. Rajaratnam even had time to spread the tip to another trader, who also bought shares of Goldman. The news became public at 6 p.m. that day. The next day, Rajaratnam sold the shares for a $900,000 profit."
All of which has left me at an absolute loss on the obvious question: If Gupta is guilty of what he's been accused of, why on earth would he do it?
Even attempting to answer such a question is difficult, for all the obvious reasons:
Why would someone so successful risk losing so much? Why would someone at Gupta's level need money in the first place? How could someone as sophisticated as Gupta think he wouldn't get caught?
It reminds me a bit of CS Lewis's Trilemma.
CS Lewis, was the author and Oxford Don who wrote the children's book The Lion the Witch and the Wardrobe. He was also a devout Christian. Lewis speculated that since Jesus said he was the son of God, there were only three possibilities: He was either Lord, Lunatic, or a Liar.
Which may be analogous to this case.
Without speculating about the specifics, and viewed through the lens of the hypothetical, it stands to reason that a successful business leader would have to fall into one of three categories to commit crimes as astonishingly brazen as the ones Gupta is accused of: Lunatic, Logo, or Luckless innocent.
Lunatic: If the accused committed the crime, the individual would have to have a severely impaired moral compass—as well as a grossly distorted view of both the world and the probability of getting caught. In this case, disclosing inside information about Goldman Sachs before Warren Buffet's massive investment would have been sheer lunacy. The entire market would have noticed the oddness of the trading pattern, because everyone would have been watching the stock very closely that day.
Logo: This one is a frightening proposition. Perhaps, some might argue, malfeasance has become so thoroughly metastasized on Wall Street that an act of such brazenness didn't seem materially more corrupt than all of the rest—in which case the perpetrator would be a symbol, or logo,for the broader practices within the industry.
Luckless innocent: Perhaps the business titan is completely innocent of all criminal wrongdoing, as he is presumed to be under the law—and just made exactly the wrong phone call at exactly the wrong time to exactly wrong person. It seems such an improbable scenario that the unluckiness would be jaw dropping indeed.
Perhaps what makes the case so difficult to comprehend is all that three scenarios seem in some measure implausible or unsatisfying.
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