Can India punish Rajat Gupta?

The recent conviction of Rajat Gupta, former McKinsey boss and Goldman Sachs director, for insider trading marks a disappointing low in the high-profile career of the Indian-American Wall Street executive whose meteoric rise in the American corporate world had served as an inspiration to many. He will naturally appeal against the verdict. But the possibility of his moving from the high-power board room to a lowly prison cell remains high. Can something similar to Gupta’s conviction happen in India? Insider trading, price manipulation and rigging has always been rampant on the Dalal Street. But if someone with the background and stature of Rajat Gupta were charged with insider trading, what are the chances that he would be prosecuted fairly and if found guilty punished properly? The short answer is: very slim. Here is why. Notice first that the prosecution in the US focused single mindedly on the business at hand; it did not allow itself to be distracted by other details, which though important were unrelated to the charge under examination, like Gupta’s hard and inspiring struggle to come up in life, his record of social service and philanthropy etc. Notice also that the evidence against Gupta was largely circumstantial. Interestingly, the jury found that Gupta was “motivated not by quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships”. Combine all the three elements of the trial and the verdict and you would know why chances of its happening in India are very slim. If Gupta were a naturalised citizen of India, NGOs and human rights mafia along with 24x7 channels would work overtime to whip up public sympathy for him, citing his valiant struggle to the top, his philanthropy, social service etc. If he belonged to a religious minority, political parties would try to ensure ‘in the interests of India’s secular and democratic credentials’ that no harm came to him. At social level, most Indians are bemused by the accusations and the conviction: a man goes to jail because he shared information with a friend? How funny! Insider trading in the Indian context would be treated almost as a case of being singularly well informed. In the past three years, Sebi has solved (until December 2011) 28 insider trading cases, along with 112 price-rigging cases. There were some suspensions, prohibitions, warnings, disgorgement orders and consent orders. However, no body went to jail. In America, an indictment of securities trading violations by the SEC is likely to be followed by criminal prosecution and, very likely, a prison sentence. This raises the bar for financial crimes and probably has a deterrent effect. But in India, Sebi’s orders were not followed by criminal prosecution, which should have been automatic. Most basically, India’s investor protection establishment lacks the means to deal with the malpractice. Sebi, till date, does not have a digital list of corporate networks — who is related to whom by marriage or through business — that can be computer-matched on a 24x7 basis with trading patterns. The government refuses to give Sebi the power to tap phones. Even its request to at least get the phone call logs of persons it is investigating has been turned down. It is not a coincidence that Indian households invest a very small — and diminishing — fraction of their savings in shares. Insider trading and price manipulation vitiate market action and dishearten legitimate investors. Let us hope that the Gupta-Rajaratnam cases will inspire an overhaul of India’s treatment of white collar crimes.