Home / Companies / People /  Rajat Gupta’s phone call

The only phone conversation between Rajaratnam and Gupta that the US government was able to tap took place in the early evening of 29 July 2008. It lasted eighteen minutes. The conversation is, to say the least, revealing. Gupta sounds unsure and confused at times, and is looking to his friend for career advice. He is also lobbying for a bigger role in the Galleon Group—and more money.

It is obvious from the conversation that Gupta is well aware that his long-time protégé, and McKinsey employee, Anil Kumar, is working on the sly for Rajaratnam and is getting paid for it. Gupta has now been retired from McKinsey for about a year, but the conversation implies that it is very likely he knew about the arrangement between Rajaratnam and Kumar while he was still working at the firm.

After the usual pleasantries, Rajaratnam, who is suffering from a cold, mentions that he has called because he is meeting Gary Cohn, president and chief operating officer of Goldman Sachs, in two days, then goes on: “And there’s a rumour that Goldman might look to buy a commercial bank." Gupta is initially non-committal, but Rajaratnam asks him point blank: “Have you heard anything along that line?" He mentions Wachovia, at that time the fourth-largest bank holding company in the US in terms of assets, but in deep trouble.

“Yeah," says Gupta. “There was a big discussion at the board meeting." During Gupta’s trial, the prosecution would establish that the Goldman board meeting he refers to was one held at St Petersburg in Russia about a month before this conversation. Rajaratnam waits for him to reveal more. “Uh, whether we, uh…buy a commercial bank. And, you know it was a uh, divided discussion in the board…I think more people saying why, because in essence it’s a low-return business and while, yeah, it may be interesting to develop a deposit base which is a low-cost source of funding."

Gupta has, thus, apparently given Rajaratnam information about what went on in a board meeting; information that can certainly be termed “privileged" and “nonpublic". But has he really? Gupta’s defence lawyers will have their own answer to that question during the trial.

“Uh, you know," Gupta continues, reporting how the discussion went during the meeting. “What we should probably explore more is, I mean, we aren’t having trouble funding ourselves; but, you know, we should explore more global sources of funding. And, perhaps, even you know, uh, insurance or other things which also are a low uh cost, also…"

“Return," Rajaratnam completes the sentence.

Gupta then goes on to speculate what Goldman Sachs may end up doing. “They are an opportunistic group," he says, “so…if Wachovia was a good deal and, you know, it’s quite conceivable, they’d come and say let’s go buy Wachovia."

To the cynical or the suspicious, Gupta’s choice of words—"they", “opportunistic group"—may seem inappropriate for a paid director of Goldman Sachs. In fact, to such an ear, he may very well be sounding like an inside man in the investment bank working for someone else.

However, a lot of conversations between friends discussing their work can sound sinister, if studied just by themselves, away from their context and history.

“Or even AIG, right?" Rajaratnam asks.

“Or even AIG, yeah," Gupta agrees.

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A 2011 photo of Raj Rajaratnam, co-founder of Galleon Group, a New York-based hedge fund management firm in New York. Photo: Bloomberg

Rajaratnam broods over this, and then Gupta adds to what he has already let out about the board meeting. “A, AIG, it was definitely on, in, in in, the discussion…" he says. Getting an interested grunt from his friend, he continues, “Um, and you know, their view was actually, which has proven to be wrong, their view was very bearish on the commercial banks, but uh, obviously, the commercial banks have had a pop in the last…"

“Yeah," says Rajaratnam, “that’s maybe just a dead cat bounce." (In Wall Street parlance, a “dead cat bounce" is a small, brief recovery in the price of a declining stock. The expression derives from the idea that even a dead cat will bounce a bit if it falls from a great height.)

“Yeah, it could be that," agrees Gupta. “I mean, their view of credit losses and all that is (that there’s) still more to come, credit cards, retail, you know…? But you know, sometimes, that gets all factored into the market, as you know better than I do… Uh, so I would be extremely surprised if uh…"

“There was anything active," says Rajaratnam.

“Anything imminent, yeah," says Gupta.

Rajaratnam has got what he wanted, some clues to which way he should steer the dialogue and probe when he meets Goldman Sachs’ Cohn. “I’m gonna start by saying how do you see the future of financial services firms, the winners, right…? You know, can they (Goldman Sachs) just fund for short term? Commercial paper or do they need (longer-term sources of funds like) deposits and insurance and things like that… Because there are some values out there… AIG and Wachovia, and see what (Cohn) says."

(Wachovia edged to the brink of collapse by the end of September 2008, with not enough liquidity to meet its daily obligations. The US government decided that the bank was too big to be allowed to fail, and stepped in. After some bitter financial wrangling between Citigroup and Wells Fargo, and intervention by the government, Wachovia was finally bought by Wells Fargo and merged with its own financial services operations. Goldman Sachs stayed away.)

The two friends now get down to the nitty-gritty of the payment that Gupta needs to get from Galleon, presumably earnings from the Voyager hedge fund. Gupta says he has already done the calculations and would be grateful if Galleon can pay him what is due to him till 30 June. Rajaratnam agrees and then says: “Anything else? Anything interesting?"

Yes, there is. Because now Gupta introduces Anil Kumar into the discussion.

GUPTA: No. No, that’s it. Otherwise, you know, uh, uh, I saw (sighs) you know, Anil, how, how is, I mean, he seems, seems a little unsettled yesterday. I don’t know. (The rest of what he says is unintelligible.)

RAJARATNAM: He seemed unhappy.

GUPTA: Yeah.

RAJARATNAM: Because he did come to me and asked me, do you have (a) deal with Rajat on Galleon International.

GUPTA: Yeah.

RAJARATNAM: And I just said, nothing concrete. I didn’t want to get into (it) with him?

GUPTA: Yeah, yeah.

RAJARATNAM: I sort of dismissed it, without getting him into it.

GUPTA: Yeah.

RAJARATNAM: Because (coughs) I’m getting a feeling that he’s trying to, just do a mini, you know, be a mini Rajat, right?

GUPTA: Yes. Yes.

RAJARATNAM: Without bringing anything new to the party, right?

GUPTA: Yeah, yeah.

RAJARATNAM: Because then he was talking about whether he can participate somehow in Galleon International and, you know, at some point, you know, I’m also running a business for people who work hard and uh…


RAJARATNAM: You don’t need to be compensated and you know, you can’t just keep on giving, right?

GUPTA: Yeah, yeah. Yeah.

RAJARATNAM: And I, you know, honestly, Rajat, I’m giving him a million dollars a year for doing literally nothing. Just because…

GUPTA: I know, you’re being…you’re being very generous.

Let’s stand back a bit and consider what is happening. Even Gupta’s greatest admirers may feel uncomfortable with this exchange. This is the former head of McKinsey, the most respected management consultancy firm in the world, which makes him one of the most respected names in the corporate world. He is discussing a man who has been his close associate for years, working with him not only as a colleague but also on his personal projects like the Indian School of Business: a man close enough to Gupta for the two of them to set up a consultancy firm on the side, in their wives’ names. And the man Gupta is speaking to is someone who won’t be allowed entry into the sort of circle that he moves in—a Bill Clinton or a Bill Gates or a Kofi Annan would not give their time of day to Rajaratnam. But Rajaratnam is much wealthier than Gupta, and that seems reason enough for Gupta to agree almost cravenly with anything he says. He wants to be in Rajaratnam’s good books.

Now begins a bitching session that lasts several minutes.

RAJARATNAM: Yeah, but you know, I sometimes…

GUPTA: But he should sometimes say thank you for that, you know?

So, not only does Gupta approve of the relationship between Rajaratnam and Kumar, he, in fact, disapproves of Kumar not exhibiting overt gratitude.

“Yeah, but he’s never ever said," starts off Rajaratnam, then suddenly seems to realize that in his position, he can afford to be magnanimous. He shifts gears. “I mean, look, he is my friend, so (I) take (it) in that spirit, right?" he says.

This seems to blindside Gupta a bit. He appears unsure which way to go. “Yeah, yeah, I, I…", he hedges his bets. It seems that he thinks he needs to agree with his billionaire friend.

But Rajaratnam makes it easy for him by going back to grumble mode. “But he just seemed, uh, I don’t know what, he just seemed, I don’t think he’s…" he says. “I mean, that’s why I asked you, uh, I’ve never seen him laugh and be really happy, you know?"

GUPTA: Yeah, because…

RAJARATNAM: He’s constantly sche…no, scheming is not the right word, but constantly trying to figure out what other people’s angles are.

GUPTA: Right.

RAJARATNAM: And then he seems to know what everybody else is worth. You know, he leads with, “Oh, Sunil Mittal (chairman of the India-based Bharti business group) is worth 20 billion dollars." You know, when you start thinking like that…

GUPTA: Yeah.

RAJARATNAM: You know, “And this guy wants to make 500 million" and…

GUPTA: Yeah.

RAJARATNAM: And (unintelligible) wants to make 300 million dollars, and this guy…

GUPTA: Yeah. Yeah. Yeah.

RAJARATNAM: And you know, he’ll tell me Vin Gupta (of infoGroup, for which Mindspirit LLC consulted) wants to make 100 million dollars on this deal and, you know, if you start thinking like that…

GUPTA: Yeah.

RAJARATNAM: It…you know, you build the business and the money will come, right?

GUPTA: Yes. Yes. Yes.


GUPTA: Add value, and, and leave it to, you know, I, I, look at how hard he was fighting for this 2 per cent and NSR (New Silk Route) equity. I mean, it was just kind of, you know…

RAJARATNAM: You know, without, without a leg to stand on. I mean, you know, I think he (coughs) everybody was doing it (coughs) because they were magnanimous good people.

GUPTA: Look, his overall deal is NSR, as you were agreeing. It is very good. I mean, you know, gets 400,000 in cash, 10 million in, in, you know…


GUPTA: Carry.

RAJARATNAM: Uh, hum...

GUPTA: And you know, 6 per cent equity, I mean…

RAJARATNAM: Right. And I don’t know, um um, I can argue that, that I did more for NSR than he did.

GUPTA: I, I, he, I… Absolutely right. Absolutely right. (Unintelligible)

RAJARATNAM: He, he, he coordinated the, he coordinated those uh telephone meetings, right?

GUPTA: Yeah, yeah, yeah… Absolutely right.

RAJARATNAM: And that’s about it, right?

GUPTA: Yeah. Yeah. Yeah.

RAJARATNAM: I put in 50 million bucks, whatever.

GUPTA: Yeah, yeah.

RAJARATNAM: I went on the trips. Whatever, but…

GUPTA: Yeah. Yeah. Yeah.

RAJARATNAM: And I, look, I’m happy with, you know…

Does Gupta see this as an opportunity to ingratiate himself with Rajaratnam? For he says: “You’re happy. You’re in a different place."

RAJARATNAM: Yeah, I’m happy with it, but, you know, there’s a fairness, right?

GUPTA: Yeah.

RAJARATNAM: Now, from, for the last three or four, I mean, four or five years, I’ve given him a million bucks a year, right?

GUPTA: Yeah.

Gupta’s response indicates that he knew about the Rajaratnam-Kumar nexus when Gupta was still employed at McKinsey and Kumar was a colleague.

RAJARATNAM: After taxes, offshore cash.

GUPTA: Yeah. Yeah.

So Gupta knew that that the payment methods were hardly kosher.

RAJARATNAM: Right? And then he comes to me and tells me, “You know, moving to New York is going to be expensive and I’m only moving to be with NSR and you guys, and, you know, is there anything more that we can expect?" And you know, and it’s like, I, I, and I felt, between you and (me), I felt like he was putting a stake through my…

GUPTA: Yeah.

RAJARATNAM: …you know, stomach, because instead of saying thank you for giving me 5 million dollars after taxes…

GUPTA: Yeah, other, other thing is I don’t understand why he doesn’t…OK, you mention it once, and if people want to do it, they will come. I mean, like the NSR thing, you mention it once, if people want to do it, they’ll do it for you. Otherwise, you just say OK, you know, fine.

RAJARATNAM: No (unintelligible). If he comes and does a big deal, and he’s instrumental in orchestrating a deal and getting it done, right? People might say, hey, here’s a bonus, you know?

GUPTA: Yeah.

RAJARATNAM: So, I don’t know.

GUPTA: Yeah.

That closes the Anil Kumar chapter as far as this particular phone call is concerned. Gupta now asks for advice from Rajaratnam on what he should do about a job offer he has had from private equity fund Kohlberg Kravis Roberts (KKR), and about his engagement with NSR. On NSR, Rajaratnam advises that Gupta should make it clear to Parag Saxena that his “value-added is not to do cash flows", that his “value-added is to bring people together, at the right time make the call, introduce people and so on and so forth". “If anybody complains that you are not spending one day or two days or you promised that, then they are not understanding your value," he says. “I think you’re instrumental in uh, architecting this NSR in raising capital… And in giving it huge credibility in India."

Rajaratnam then goes on to give Gupta broad career advice. Gupta should, he recommends, do “a portfolio of things you enjoy doing and you want to do and that you, you can add value at, right"?

Gupta agrees. “So," says Rajaratnam, “Galleon International can be one…"

This is the opening Gupta has been looking for, because he wants more than a role in the Galleon International fund (which Rajaratnam has promised him, as will be revealed during the trial), he wants a role in the larger entity, the whole Galleon Group. He starts off awkwardly, and as the conversation progresses, a pleading note creeps into his voice that is painful to hear.

GUPTA: By the way, on that, I want you to keep, us to keep having the dialogue as to what…


GUPTA: You know, I can be helpful in Galleon International. By the way, not Galleon International, Galleon Group. I mean, you’ve given…

RAJARATNAM: Galleon Group, right.

GUPTA: …a position in Galleon International. That’s good enough. I, I…

Evidence presented at Gupta’s trial will show that while both Rajaratnam and Gupta will tell the world that Gupta is the chairman of Galleon International, the designation will never be made official on paper.

Rajaratnam knows what Gupta is angling for, and he seems to take evasive action by buying time. “Yeah, but you know what," he says, “I, I am now at the point where I, in the last couple of years, I’m building, right?"

GUPTA: Yeah.

RAJARATNAM: Rather than just making returns, just and not building, right?

GUPTA: Right. Right.

RAJARATNAM: So I’m putting the structure in place and all of that, right? So we will build this into a 10-billion-dollar company, hopefully by the end of 2009.

GUPTA: Yes. Yes, you will.

RAJARATNAM: So and that’s sort of the goal, right?

GUPTA: Yeah. Yeah. Yeah. Yeah.

RAJARATNAM: And so, I, my goal, what I told people was, 2010 we enter with 10 billion dollars.

GUPTA: Right. And there, you know, I do want to, I, I, I, will now next week, I’ll, I mean I’ve been having periodic meetings with these guys (Galleon International executives).


GUPTA: On the fund-raising side, and I’ll continue to do that and, you know, they pulled me in, but I’m, you know, please keep telling them they, they should pull me in wherever they think I can add value, and, you know?

RAJARATNAM: Yeah. And I think, yeah…

GUPTA: And you should do…feel the same. Any meeting you want me to come…

That is clearly another attempt by Gupta to push his case for a role across the Galleon Group.

But Rajaratnam doesn’t want to get into that. He now cleverly kills the Galleon topic by moving back to broader issues. “So, so that thing," he says. “So I think, you know, having a portfolio of opportunities, right? To really leverage your, you know, experience, is the right way to do it, right?"

“Uh, hmm," Gupta mumbles, perhaps disappointed. They go on to talk about other things.

The power hierarchy is quite well-defined in this conversation. Rajaratnam is on a higher rung. Gupta wants something from him, and hopes that Rajaratnam will consider his request favourably. Rajaratnam would rather not commit immediately, but keep Gupta dangling, confident that the man isn’t going to go away, and will, as the prosecution at Gupta’s trial will allege, be good for useful information from boardrooms, from time to time.

But why is the relationship skewed in favour of Rajaratnam? Everyone who has some idea about who these two people are, and listens to this conversation, will almost certainly come to the same conclusion: that the skew comes from Rajaratnam being much wealthier than Gupta. Gupta is worth $130 million, but Rajaratnam is a billionaire.

The cruellest cut for Gupta, however, was that while Rajaratnam was discussing Anil Kumar with Gupta, he was also discussing Gupta with Anil Kumar. Gupta would not know that till the wiretapped conversations were played in court during the hedge fund boss’s trial.

Less than three weeks after Rajaratnam had complained to Gupta about Kumar’s ingratitude, on 15 August 2008, he was telling Kumar about Gupta: “There’s also this sort of lost soul, type of lost, there’s no…focus. There’s a lack of focus and lack of clarity and what is it that (Rajat) really wants, and it seems like he retired too early."

In another conversation, Rajaratnam explains the details of the deal that KKR is offering Gupta, and says “it was about $5 million a year with upside". Kumar expresses surprise at the choices that his McKinsey mentor is making. “Is it really that he is so greedy for the money that KKR has offered him?" he asks. Rajaratnam’s reply: “My analysis of the situation is he’s enamoured with Kravis, and I think he wants to be in that circle. That’s a billionaire circle, right? Goldman is like the hundreds of millions circle, right? And I think here he sees the opportunity to make $100 million over the next five years or ten years without doing a lot of work."

Both appear concerned about Gupta’s emotional health. “At some point, what I worry about is that there can be this massive implosion in him," says Kumar.

Rajaratnam muses: “He didn’t seem comfortable. He seemed like he was tormented, right?"

So, Gupta thinks Kumar is “unsettled", and Rajaratnam thinks he is “unhappy". Kumar thinks Gupta could implode, and Rajaratnam thinks he is “tormented". Both the Indians seem to be in way above their heads, pathetically looking for affirmation from the confident Rajaratnam for their confused ambitions.

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