Lesson to learn

The conviction of Rajat Gupta, an icon of modern business and a symbol of achievement, by a US court on charges of insider trading sends out some important messages for the world and especially for India. Gupta was among the top Indians to make it big in American business and represented the American dream of achieving excellence through ambition, ability and hard work. His was a fairy tale journey from an orphan in Kolkota to the top of the consulting firm McKinsey at a young age. But as the jury which found him guilty even unwillingly noted, he fell afoul of the dream, just because he was driven by not just greed, but bigger greed. At the top level of the corporate hierarchy he had everything he wanted, but perhaps wanted more and could not resist  the temptation from his friend Raj Rajaratnam, who has already been convicted on the same charges. The fact that some members of the jury could not resist tears shows how they felt conflicted between sympathy and admiration on the one hand and the majesty of law on the other.

There was no hard evidence against Gupta but there was overwhelming circumstantial evidence to prove his guilt. The use of such evidence, especially tapped telephone conversations, was new in cases of financial crime like insider trading. But it is now accepted because of the difficulties involved in investigating and proving such crimes. The US law enforcement authorities have succeeded in getting conviction in a large number of recent insider trading cases. But such cases are few in India and convictions are rarer, though it is known that the malpractice is quite rampant. The punishment when given is also minor and does not act as deterrent. This contrasts with the possibility of a 20-year jail term for Gupta. The big fish usually get away in India and it is inconceivable that a person of Gupta’s stature is hauled before the law and made to pay for his actions.

The Securities and Exchange Board of India does not have enough powers and an effective investigation system to follow up cases of insider trading. It does not even have adequate infrastructure for that. The matter calls for immediate attention because insider trading distorts the market and always goes against the interests of small investors and hurts investor confidence.

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