Be careful who you show off to, Rajat Gupta edition

By Felix Salmon
March 1, 2011
John Carney asks why Rajat Gupta might have done what he's accused of doing:

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John Carney asks why Rajat Gupta might have done what he’s accused of doing:

Gupta ran McKinsey. He sat on the board of Goldman. He is the ultimate insider.

One of the reasons we rarely see insider trading charges against people who have the stature and wealth against Gupta is that insider trading makes so little logical sense for such people. There’s really no reason Gupta should leak confidential information to a hedge fund manager. He doesn’t need money, access, prestige or any favors at all.

If he did tip off his hedge fund manager friend, it was something darker than greed or ambition. It was something close to sociopathic narcissism—perhaps a belief that he was somehow above the law, immune to the rules that govern the rest of us.

“Sociopathic narcissism” is one way of putting it, but I think there’s something very human here. And John and I see it every day, at CNBC and Reuters: reporters get phoned up by very rich and important individuals, and get told information which can’t conceivably benefit the person doing the leaking, except psychologically. It doesn’t matter how rich or how important you are, the idea of being able to show off like that — to demonstrate that “I know something you don’t know”, to be cultivated and praised and effusively thanked — is very appealing.

Gupta, if he did give inside information to Raj Rajaratnam, wasn’t doing it for the money. He was doing it to feel important, to get the respect of his friend, to demonstrate just how plugged in he was to some of the most important decisions being made at the height of the financial crisis.

The moral of this story, then, is that if you ever feel that human need for validation and need to unburden yourself of a valuable secret, make sure you phone a journalist, rather than a hedge-fund manager. That’s not illegal, and it’s just as gratifying.


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100% agreement.

Posted by ottorock | Report as abusive

Except you damn well better be sure the journalist will treat that insider information as information, and not trade on it. The insider trading laws are designed to come after the leaker even if that person did not personally benefit financially from the leak. That appears to be the case here with Gupta.

Not that journalists are known for insider trading, but it’s not unheard of. And last time I checked, journalists are human.

Caveat leakor.

Posted by EpicureanDeal | Report as abusive

Better advice: If you want to show how clever and well-plugged-in you are, start a blog.

There is precedent.

Posted by EpicureanDeal | Report as abusive

In related news, Charlie Sheen’s Twitter account is now up and running. Maybe Gupta can guest-post.

Posted by johnhhaskell | Report as abusive

@TED – but a blog is hard work! Giving insider information is not.

Posted by Curmudgeon | Report as abusive

Frankly, I’m surprised that no one is willing to talk about the 800LB gorilla in the room, including Felix. So I’ll name it: what’s the South Asian cultural insider connection to all this? Uh-oh, are the thought police coming after me? Probably.

But it is striking that when Madoff exploded in our collective faces one of the MOST commented upon things was the way he ripped off his fellow Jews–and not just any old Jewish people, he ripped off Elie Wiesel! He ripped off charities! He literally took food out of children’s hands!

But at least he has been confronted about his abuses, and above all his abuses of his own people.

This insider trading scandal is about something different. It is about people NOT betraying their own people, but helping them break into the insider’s club.

Why are we not even talking about this aspect of the story?

Posted by LadyGodiva | Report as abusive

Why are we not even talking about this aspect of the story?
Because it’s not really important, unless you think there’s some south asian cabal working to undermine our financial system. People tend to have associations with people of similar background. This only seems odd if you view white as being the “default” race with all others being unusual.

The Madoff story was notable because it is considered especially heinous to rip off charities and “your own people. (And because it is still widely assumed that jews stick together to screw non-jews.)

Posted by MaxUtil | Report as abusive

With the kind of money lost in the 2008 financial crisis, and bankrupt populace thanks to poor credit/lending policies by the banks, all the government/regulators could come up with are insider trading charges against a few!!! Its a joke. Who is being arrested for the systemic risk placed on the entire country because of the bad policies of banks/congress?? Isn’t the value of real estate decided by the highest bidder, who in turn in financed beyond his means by the banks? Its a disgrace!

Posted by Archmaverick | Report as abusive

Worth looking back at Texas Gulf Sulphur case in 1964. Circumstances almost identical: a director of TG (Thomas Lamont, retired Vice-Chairman of Morgan Guaranty) left a TG board meeting and called Longstreet Hinton, then head of MG’s pension investment to tip him off that rumors of a huge multi-mineral strike by TG in Ontario were true. Hinton then bought stock for various accounts (including his own). SEC did not bring criminal charges, and the issue bled away in a dispute, largely terminological, over what news about itself TG had made public when. Regarding motive in the Gupta matter, Naftalis, G’s lawyer, pointed out that his client had lost $10 million with Raj. Might there have been an agreement involving a make-whole? $10 million was probably real money to Gupta.

Posted by midasw | Report as abusive

stylish, restrained and easy

Posted by traducere romana daneza | Report as abusive