A McKinsey CEO’s shocking downfall

Once a respected figure in global business, Rajat Gupta became the first foreign-born CEO of McKinsey & Company. He was a trusted advisor to Fortune 500 CEOs and a board member at Goldman Sachs. But his legacy took a dramatic turn when he was arrested for insider trading after making a single phone call.

This week, we explore how Gupta became the CEO of McKinsey, the insider trading scandal that destroyed it, and his life after prison.

• 💼 From orphan to CEO of McKinsey

• 💥 The career-ending insider trading scandal

• 📈 Conviction, prison, and his fight to rebuild

— Investor Briefcase Team

Born in India, Gupta was orphaned as a teenager after losing both his parents to prolonged illness. Despite the hardship, he excelled academically and earned a spot at the prestigious Indian Institute of Technology. After earning an engineering degree in India he secured a scholarship to Harvard Business School which would eventually land him his first job at McKinsey & Company.

He joined the firm in 1973 and quickly climbed the ranks, becoming its first non-American managing director in 1994. Over three terms as McKinsey’s leader, Gupta turned the firm into the most prestigious consulting firm, expanding its presence in emerging markets and creating its reputation as the go-to consultant for banks and Fortune 500 companies.

Gupta’s tenure reshaped McKinsey’s role in corporate strategy. He built deep relationships with top executives and political leaders, helping the firm advise companies like General Electric, IBM, and global banks on billion-dollar decisions. His ability to navigate boardrooms made him one of the most well-connected figures in business.

As his influence grew, Gupta transitioned into finance, using his connections to secure board positions at some of the world’s largest firms. He joined the boards of Goldman Sachs and American Airlines and became an advisor to investment firms and nonprofits. With his reputation as a corporate strategist and his deep understanding of global markets, he was seen as a valuable asset to financial institutions.

By the mid-2000s, Gupta had formed a close relationship with Raj Rajaratnam, the founder of Galleon Group, one of the most successful hedge funds at the time which was based in New York. The two had overlapping business interests. Rajaratnam invested in Gupta’s private equity ventures, while their partnership was built on shared financial opportunities. However, this relationship would soon land them both in jail.

On September 23, 2008, Gupta was part of a private Goldman Sachs board meeting where executives discussed a $5 billion investment from Warren Buffett’s Berkshire Hathaway. The investment from Berkshire in Goldman was designed to stabilize the bank during the financial crisis. However, just moments after the meeting ended, Gupta called Rajaratnam. Within a few minutes of that call, Galleon began purchasing massive amounts of Goldman Sachs stock. When the deal became public, Goldman’s stock soared, and Rajaratnam’s fund made millions overnight.

Prosecutors later revealed that this was not an isolated incident. Gupta had passed along confidential information multiple times, including early warnings about Goldman Sach’s earnings reports. Wiretap evidence captured Rajaratnam openly discussing Gupta’s tips with his colleagues, bragging about how valuable his insider source was.

Unlike most insider trading cases, Gupta never directly profited from the information he allegedly shared. He did not trade stocks or officially receive payments from Galleon. Prosecutors, however, argued that his long-standing business relationship with Rajaratnam, who had invested in Gupta’s private equity ventures—was incentive enough.

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In 2012, Gupta was convicted on four charges of insider trading and sentenced to two years in prison. The trial was a stunning fall from grace for a man who had once been seen as a role model in the corporate world.

The case exposed how powerful networks operated in the financial world, where access to information was currency. Gupta had spent decades advising CEOs and governments, but in the end, it was a handful of phone calls that led to his undoing.

The mastermind behind the scheme, Rajaratnam was sentenced to 11 years in prison, one of the longest sentences ever for insider trading. His downfall sent shockwaves through Wall Street, leading to a wave of investigations into hedge funds and illegal trading practices.

After his release, Gupta continues to maintain his innocence, claiming he had been unfairly targeted. But the evidence was overwhelming—phone records, recorded conversations, and trading data showed a clear pattern of illegal activity. He has attempted to restore his reputation, writing a memoir and making public appearances. However, his name remains tied to one of the most notorious insider trading scandals in history.

From the CEO of McKinsey to a federal prison cell, Rajat Gupta’s story shows the devastating cost of ethical missteps and the corruption of power.

More Stories
Other Notable Insider Trading Scandals

> Doug Whitman: Hedge fund manager and founder of Whitman Capital. Convicted in 2012 for profiting from insider information obtained through a network of contacts in Silicon Valley, Whitman was sentenced to two years in prison.

> Sam Waksal: Founder of ImClone Systems. Waksal was convicted in 2003 for tipping off friends and family, including Martha Stewart, about the FDA’s rejection of ImClone’s cancer drug before it was public. He served over seven years in prison.

> Joseph Nacchio: Former CEO of Qwest Communications. Convicted in 2007 for selling $52 million in stock while knowing the company faced financial troubles, Nacchio was sentenced to six years in prison.

Each week we profile the most notorious investment stories.

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