CALDEIRÃO DE BOLSA

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/21cabb44-4461 ... z1GNtHdVz1


Rising to the top at McKinsey
By Dan McCrum and Francesco Guerrera

Published: March 2 2011 00:32 | Last updated: March 2 2011 00:32

Until civil insider trading charges were filed against Rajat Gupta on Tuesday, he was regarded as one of the great success stories at McKinsey, the elite management consultancy he led for almost a decade.

Born to a middle-class family in Maniktala, Calcutta, Mr Gupta joined McKinsey in 1973 from Harvard Business School. After a 21-year rise, he was elected as managing director in 1994, the first Indian to head a global company.

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/097dc658-4461 ... z1GNrKxeUm


Civil charges threaten to tarnish Gupta’s career
By Kara Scannell in New York

Published: March 2 2011 00:32 | Last updated: March 2 2011 00:32

The civil insider trading charges filed on Tuesday against Rajat Gupta threaten to tarnish a career that saw him rise to the top of McKinsey and some of the world’s most prestigious corporations, universities and foundations.

The Securities and Exchange Commission alleges Mr Gupta passed on inside information he learnt as a director of Goldman Sachs and Procter & Gamble to hedge fund billionaire Raj Rajaratnam.

EDITOR’S CHOICE
Ex-Goldman director in insider case - Mar-02Rising to the top at McKinsey - Mar-02Ex-Galleon managers admit insider trading - Jan-27In depth: Insider trading scandal - Oct-22Morgan Stanley named in Galleon case - Jan-22US technology analyst admits fraud charges - Jan-12Those tips – about a key investment and quarterly earnings – allegedly helped Galleon earn $18m in illicit profits and avoided losses.

The civil charges come one week before jury selection is expected to begin in the US criminal trial of Mr Rajaratnam.

Mr Rajaratnam has denied any wrongdoing. His spokesman declined to comment on the charges against Mr Gupta.

Lawyers say it is likely Mr Rajaratnam’s legal team will argue the charges against Mr Gupta could prejudice potential jurors. The charges come from the SEC and not federal prosecutors, who have filed criminal insider-trading charges against more than 40 people and have been investigating Mr Gupta. The status of the criminal investigation into Mr Gupta was unclear.

The US attorney’s office in Manhattan, which is prosecuting the case against Mr Rajaratnam, declined to comment. Mr Gupta’s attorney called the charges “baseless” and said his client had done nothing wrong. He added that there is no allegation Mr Gupta traded on the information and says “he lost his entire $10m investment in the GB Voyager Fund managed by Mr Rajaratnam” in the fall of 2008.

According to court documents, Mr Gupta was in frequent contact with Mr Rajaratnam, including immediately after Goldman board meetings in 2008. In one case, Mr Gupta allegedly called Mr Rajaratnam 23 seconds after a Goldman board telephone meeting, about earnings, adjourned.

Mr Gupta, 62, met Mr Rajaratnam in the last decade after Mr Rajaratnam made a donation to the Indian School of Business, an institution Mr Gupta founded, said a person familiar with the matter. They quickly forged business relationships and in 2006, along with Mark Schwartz, a former Goldman executive, launched Taj Capital Partners, which was renamed New Silk Route Partners. New Silk declined to comment.

The allegations follow an impressive career. In 1973, fresh out of Harvard Business School, Mr Gupta joined McKinsey. He eventually led the firm’s Scandinavian and Chicago offices. In 1994, he was named managing director of global operations. He held that position until 2003 and officially retired in 2007.

By 2006, Mr Gupta had joined boards, including Goldman and P&G. He is also on the board of the Rockefeller Foundation and the board of dean’s advisers of the Harvard Business School. He is chairman of an advisory board of the Bill & Melinda Gates Foundation.

He voluntarily resigned from the P&G board on Tuesday, the company said. In March 2010, he said he would not seek re-election to the Goldman board. Less than one month later reports identified him as being under investigation.
Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article - http://www.ft.com/cms/s/0/c3a18da0-4432 ... z1GNpn87lU


Ex-Goldman director in insider case
By Kara Scannell in New York

Published: March 1 2011 19:01 | Last updated: March 2 2011 01:42

Rajat Gupta, who ran McKinsey for almost a decade, has been hit with civil insider trading charges for allegedly sharing secret information he learnt as a board member of Goldman Sachs and Procter & Gamble with Galleon Group founder Raj Rajaratnam.

The Securities and Exchange Commission’s charges allege Mr Gupta shared information about Warren Buffett’s $5bn capital infusion into the bank in 2008 within one minute of the board’s approval of the deal.

EDITOR’S CHOICE
Civil charges threaten to tarnish Gupta’s career - Mar-02Rising to the top at McKinsey - Mar-02Ex-Galleon managers admit insider trading - Jan-27In depth: Insider trading scandal - Oct-22Morgan Stanley named in Galleon case - Jan-22US technology analyst admits fraud charges - Jan-12The infusion, at the height of the financial crisis, was critical for assuring investors about Goldman’s sustainability after the Lehman Brothers collapse.

The insider trading charges against Mr Gupta are a stunning setback for the one-time global managing director of McKinsey, the consulting firm. It also marks one of the highest profile insider trading charges brought against a bank director.

After stepping down from McKinsey in 2003, Mr Gupta joined the Goldman board in 2006, where he was a member of its audit, corporate governance and compensation committees. He left the board in May 2010 following news reports that he was under investigation.

Statement of Gary Naftalis, counsel for Rajat Gupta
The SEC’s allegations are totally baseless. Mr Gupta’s 40-year record of ethical conduct, integrity, and commitment to guarding his clients’ confidences is beyond reproach. Mr Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime of honesty and integrity.
Mr Gupta’s lawyer called the allegations “baseless” and said his client did nothing wrong. Mr Gupta has not been charged criminally. Mr Rajaratnam is expected to go on trial next week on criminal insider trading charges. His spokesman said: “This is simply an effort to destroy a favourable witness. There is no case, absolutely none. No conversations, no benefit, no nothing.”

Mr Rajaratnam has denied wrongdoing. A Goldman representative declined to comment.

The tips netted $18m in profits for Galleon, says the SEC. Mr Gupta benefited, the watchdog alleges, through his investment in a Galleon fund that had stakes in other Galleon funds that profited by the trades.

The SEC alleges Mr Gupta took part in a special phone meeting of Goldman’s board on September 23, 2008, to consider Mr Buffett’s investment through his company, Berkshire Hathaway. Following the 38-minute call, Mr Gupta called Mr Rajaratnam and tipped him off about the investment, the SEC alleges. Minutes before the market closed, at 3:56pm and 3:57pm, says the SEC, Galleon funds bought 175,000 Goldman shares, which it sold next day for more than $900,000 in profits.

Mr Gupta, 62, allegedly advised Mr Rajaratnam that Goldman would exceed analyst expectations in the second quarter of 2008. Mr Gupta, who was also a P&G board member, allegedly told Mr Rajaratnam the consumer products group’s organic sales would be less than had been reported. Mr Rajaratnam shorted the stock, betting it would decline, for a $570,000 profit. Mr Gupta resigned from the P&G board on Tuesday.
Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Published: March 6, 2011 5:59 AM
Modified: March 8, 2011 1:49 PM
Scandal taints McKinsey
Ex-CEO's insider tip-offs put firm's reputation, client roster at risk.
Share Print Email Comment By Aaron Elstein
Newscom
[+] Enlarge

THE McKINSEY WEIGH: The famed consulting firm's many Fortune 1000 clients must decide if former chief Rajat Gupta's insider trading was an anomaly.
Attached Files
McKinsey scandal shocks Wall Street, with Aaron Elstein Download

In November 2008, with the world's financial system in free fall, Rajat Gupta made some strikingly prescient remarks. “Every organization is vulnerable to a sudden shock,” the former chief of McKinsey & Co. told an audience in Dubai. “There's only one thing that's predictable about crises: Sooner or later, almost every organization will endure one.”

It's McKinsey's turn.

The world's most prestigious management consultancy was shaken to its core last week when federal authorities charged Mr. Gupta with insider trading for giving a hedge fund manager confidential information about Goldman Sachs and Procter & Gamble when he served on their boards. The allegations--which Mr. Gupta's lawyer calls "totally baseless"--came a year after another McKinsey executive pleaded guilty to passing along tips to the same hedge fund. The cases are devastating for a blue-chip firm whose reputation rests not merely on providing corporate leaders with smart advice but also safeguarding their secrets.

“It's sickening,” said former McKinsey partner Gary MacDougal, now an independent adviser to state governments. “For those who know and love the firm, whose lives were transformed by it, this is very, very hard to deal with. It's like a death in the family.”

McKinsey partners are the high priests of capitalism. Armed with PowerPoint presentations, they tell businesses how to operate more efficiently or tell countries how to act more like companies. The terminology pioneered by what its employees reverentially call “The Firm” reaches deep into the corporate realm: McKinsey was the first to describe customers as “clients” and projects as “engagements.” Its 23,000 alumni include Morgan Stanley CEO James Gorman, former IBM CEO Louis Gerstner and former American Express CEO Harvey Golub.

More like a master key than a job
“A job at McKinsey is like someone giving you a master key—there's not a door in the world that doesn't open,” said Anat Lechner, a professor of management at New York University and a McKinsey alumna. “It's like working for Goldman Sachs, maybe even better.”

McKinsey became a force under the legendary Marvin Bower, a Cleveland lawyer who in 1939 acquired the 18-employee firm, which specialized in accounting and what was then called “management engineering.” Bower led it until 1967 and remained a presence until he died in 2003, at age 99.

“The thing that will cause people to come to us is because, like the doctor, they can put themselves in our hands and know we are going to treat them in their interest,” Mr. Bower told partners in a 1964 speech.

About two-thirds of the 1,000 largest companies now put themselves in McKinsey's hands for advice on strategy and solving complex problems. The firm's ethical compass steered it through the insider-trading scandals of the 1980s unscathed. It did take a public relations hit when Enron collapsed in 2001, because the energy giant was a prize client and its CEO a McKinsey alumnus who heartily endorsed the firm's theories about “loose-tight” management and “asset-light” portfolios. But that was a mere blip.

Between 1998 and 2010, Mc-Kinsey's revenues tripled, to $6.6 billion, and head count doubled to 17,000, according to Forbes data. Not even the economic collapse of 2008 affected the firm, with revenues growing 36% between 2007 and 2009, thanks partly to its restructuring business.

Yet McKinsey faced a challenge in “the war for talent”—a phrase it coined in 1997—as Wall Street pay reached the stratosphere. For instance, New York University M.B.A.'s recently reported that while those who went to consulting firms drew 17% higher salaries last year than those who went to investment banks or hedge funds, bonuses for the latter were nearly double those of the former.

The lure of Wall Street-like pay may be one reason that confidential client information began leaking out of McKinsey. According to his lawyer, Mr. Gupta didn't profit from passing along tips to hedge fund manager Raj Rajaratnam, whose trial is set to begin Tuesday. But, Anil Kumar, the McKinsey executive who in January 2010 pleaded guilty to insider trading, agreed to return $2.6 million in investment profits and cash payments from Mr. Rajaratnam.

Other companies have strayed
Plenty of people at other highly regarded companies have violated their clients' trust for short-term gain. Executives at IBM and Intel have pleaded guilty to insider-trading charges brought as part of the sweeping federal investigation. Two former Deloitte & Touche partners were also charged with insider trading last year.

McKinsey has always seen itself as special, however. “Fundamentally, what we have is our reputation,” Mr. Gupta, who worked at the firm for more than 30 years, told a London audience in 2003.

The alumni are watching anxiously to see how much business heads out the door. Some believe McKinsey should begin a public campaign to make clear that it understands the seriousness of its problems and is working to resolve them. McKinsey declined to comment.

“This is not something you can easily move past,” Ms. Lechner at NYU said. “It's like your girlfriend lied to you. If she lied about one thing, maybe she's lied about other things.”

Clarification: Rajat Gupta's attorney denies all allegations against his client. That fact was not clear in an earlier version of this article, originally published online March 6, 2011