Tuesday, March 22, 2011

Shall we call it "quanami" ?

It is now common knowledge that tsunamis are caused by submarine earth movement or volcanic eruption. Therefore, only quakes occuring below the sea are likely to result in tsunamis. Thus we have two kinds of earthquakes : one causing tsunamis and the other not. As of now, there is no specific name for a quake that causes a tsunami. Will it not be appropriate to christen it as a "quanami" (quake + tsunami) ?

Monday, March 21, 2011

Rajat Gupta and Manmohan Singh

Sumit Mitra, writing in The Indian Express, has questioned the judgemental skills of Manmohan Singh in associating himself closely with Rajat Gupta. Of course, it may not be a fair assessment since it is yet too early to confirm Gupta's guilt. However, this is one more evidence that Singh is not behaving like Caesar's wife. (Rajat Gupta has now resigned from ISB's Board. Why did he take so long to do the obvious?)

"By Sumit Mitra

19 Mar 2011 01:43:00 AM IST

PM’s ‘Error of judgment’ - II Prime Minister Manmohan Singh, already famous for his “error of judgment” on the appointment of the Central Vigilance Commission, seems to have ‘erred’ yet again, this time round in an investigation unfolding in the US. His involvement with NRI idol Rajat Gupta, whom the Securities Exchange Commission (SEC) has accused of being a party to America’s biggest ever insider trading scam by Sri Lankan hedge fund billionaire Raj Rajaratnam, has the potential to raise further questions about Manmohan’s habitual claim of being innocent as a lamb while scams unfold all around him.

Rajaratnam is facing trial in New York on 14 separate criminal charges. They are poison-tipped with FBI wiretaps of 2,400 conversations with 1,300 friends. It is the first instance of wiretaps being used in an insider trading case. As skeletons tumble out of the cupboard of America’s financial world, Gupta may become a major liability for all those who’d lionised him. Manmohan is certainly one of them. Gupta was his golden boy at whose beck and call he had placed the cream of his staff, including Principal Secretary TKA Nair and Planning Commission Deputy Chairman Montek Singh Ahluwalia. Thanks to the PM’s support, the Indian-American former boss of McKinsey was free to tinker with public policy through institutions such as Public Health Foundation of India (PHFI), a PPP in which the Union Government invested over Rs 400 crore, and the Indian School of Business (ISB), also part-supported by the Government.

Though Gupta resigned last week as chairman of PHFI, he continues as head of ISB. This is despite the fact that he resigned from the board of investment bank Goldman Sachs as early as March 19 last year when the news perhaps first reached the bank that the SEC had been preparing the ground to implicate him as Rajaratnam’s co-conspirator. Since then he resigned from nearly all the big directorial posts he held—at Genpact, Harman International, Procter & Gamble (P&G) and AMR. As the prosecution made the first statement in the Rajaratnam case, he also took ‘leave of absence’ from New Silk Route (NSR), an India-focused private equity firm with assets worth $1.4 billion.

Gupta’s lawyers claim he is innocent. He has written to the ISB: “There are no tapes or any other direct evidence of me tipping Mr Rajaratnam. I did not trade any of the securities involved.” Not impressed, the SEC has filed a civil suit against him, clearing the ground for his administrative trial. But it has a tough job on its hands as there is no evidence it has shown yet of Gupta reaping profits from his information. Therefore, unlike in Rajaratnam’s case, what is at stake for Gupta is not his freedom but his reputation. The 63-year-old American corporate celebrity is regarded by a generation of aspiring Indians as its role model.

The main charge against Rajaratnam is that he used his Galleon hedge fund, and its experts network, to illegally ferret out non-public market-sensitive information from such blue chips as Intel, Hilton, IBM and e-Bay. Such information, powering his operations on the stock market, enabled him to net at least $45 million, if not $85 million, between 2003 and 2008.

However, the probe reached the topmost rungs of the corporate pyramid last May when the SEC named Gupta as an alleged tipster of Rajaratnam. It said that Gupta, while serving on the board of Goldman Sachs from 2006 until he resigned in 2010, had passed on material insider information on the company to Rajaratnam that enabled the latter to gain $18 million from that stock alone. On October 23, 2008 Gupta dialled into the Goldman Sachs board meeting when it was scheduled to start, and stayed on the call till its end. “Just 23 seconds after disconnecting from the call,” the SEC alleges, “Gupta called Rajaratnam. The call lasted approximately 13 minutes.” It is during this call that it became known to the board members that the “sage of Omaha” Warren Buffet had promised a $5-billion bailout package to the bank. Following the call, it is alleged, Rajaratnam got his Galleon Tech fund to acquire millions of Goldman Sachs shares which he sold as the market opened at 9.30 the next morning, after the news of the bank being in dire straits had become public (making prices plummet).

As the Galleon trial goes on, many of the Indian Government’s moves will come under the scanner. For instance, Nair continued to work under Gupta on the board of PHFI long after his alleged role in the Goldman Sachs had become common knowledge. And so did Ahluwalia, another protégé of the prime minister on the PHFI board. Besides, Manmohan also approved the appointment of K. Srinath Reddy, the head of the PM’s medical team, on a five-year secondment from AIIMS, as PHFI president.

Further, Gupta continues to be a member of the PM’s Global Advisory Council for Overseas Indians. Nor has he given an indication that he’ll quit ISB, a B-school associated with men of tainted records yet favoured by the Government. Earlier, Ramalinga Raju of Satyam Computers and his colleague M. Rama Mohan Rao, the former a director and the latter a dean of ISB, were both indicted in corporate scams. Moreover, Anil Kumar, a former McKinsey partner who was arrested in the Rajaratnam case and now promises to squeal on him, was a co-founder of ISB with Gupta.

Both PHFI and ISB have their boards studded with India’s corporate stars. Mukesh Ambani, Shiv Nadar, Purnendu Chatterjee and Harpal Singh (Fortis) are on the board of PHFI. The ISB board has Anil Ambani, Rahul Bajaj, Adi Godrej, Sunil Mittal and Chanda Kochhar (ICICI Bank). As if by a conspiracy of silence, not a word has been spoken by any of them about the discomfort of continuing with Gupta.

If the SEC’s allegations are proved, it would also expose a Dr Jekyll-Mr Hyde personality in Gupta—on one hand, being a picture of integrity to merge in the heartland of American capitalism, and yet wedded to philanthropy by striving for public health in India and serving as the head of Bill and Melinda Gates Fund’s global operation, but, on the other hand, using his privileged position to steal prize corporate information.

Gupta’s defence so far has been a denial based not so much on the conversation he allegedly had with outsiders than on his assertion that he did not benefit from any insider trade. Under the SEC law against insider trading, conviction requires proof of personal benefit; mere tipping is not enough.

However, his record on the ‘personal benefit test’ may not be squeaky clean because nobody yet knows how Galleon paid its tipsters, except for the racy details—$500,000 a year paid into a Swiss bank account in the name of his housekeeper—that came out in Anil Kumar’s testimony. But the linkages between Gupta and Rajaratnam are tell-tale. Rajaratnam partnered Gupta at least till 2008 (when his trouble began) in NSR, with Galleon directly investing in some of NSR’s Indian clients. Further, of NSR’s initial fund-raising of $2 billion in the name of Taj Capital, $600 million were parked in Galleon. It is true, as NSR is now claiming, that Rajaratnam never had a management role in the fund. But there is undeniable proximity. If SEC expands the orbit of its inquiry, and seeks the assistance of Indian regulators and agencies, it may open a Pandora’s Box, showing the proceeds of insider tipping in one continent flowing into a private equity fund in another one.

Gupta is indeed a denizen of the stratospheric layers of American capitalism. He lives in a $8-million house near Long Island Sound in Westport, Connecticut, that was once owned by the legendary billionaire J. C. Penny. He was so precious to his big-ticket clients that A.G. Lafley, P&G chairman in 2005, the year it acquired Gillette on his (Gupta’s) advice, remarked that “I think of him as Thomas Aquinus.” He personally advised Bill and Melinda Gates, General Electric’s Jeff Immelt and the Clintons.

In India, Gupta was more a national hero than a successful expatriate businessman. The ‘Firm’, McKinsey, which he headed from 1994 to 2003 (he is still a partner emeritus), became almost the philosopher and guide of Manmohan, both as finance minister from 1991 to 1996 and as PM since 2004. The fact that both Hilary Clinton and the Clintons’ daughter, Chelsea, had served as its partner at different times added glory to Gupta’s power.

Which is precisely why there is substance to the suspicion that his role in McKinsey was a front for picking up privileged information from every source, including India, and to offer it for sale to those having any need of them. That’s bad news for the Union Government which had allowed McKinsey unchecked access into the books of the nationalised banks, including the State Bank of India.

But what is more worrying is the dent that the perception of India in the West may suffer due to these ugly incidents. Apart from Anil Kumar, the prosecutors have filed chargesheets against Rajiv Goel, director of the strategic investments in Intel Capital. If it is proved that Gupta had taken America for a ride, with the assistance of a handful of his sleazy countrymen, it will make the US think again about how much it could really open up to India. Such doubt may recoil, among others, on the thriving IT sector which has access to the inner working of some of America’s best companies. A trust deficit with the US is something that India can hardly afford.

© Copyright 2008 ExpressBuzz"

Saturday, March 19, 2011

Prime Minister's pathetic argument

Wikileaks evidences what was already known : The government survived a confidence vote in July 2008 by bribing some members of the parliament.

Addressing the India Today summit on 18th March, Manmohan Singh has made a few assertions which have brought down his credibility a few notches.

1) "I have no knowledge of any such purchases (of MPs)":  Can we afford to have a prime minister who is so oblivious of reality ? He is perhaps the only Indian unaware of this grotesque event.

2) "I am absolutely categorical I have not authorised anyone to purchase any votes":  Mr.Prime Minister, nobody seeks any authorisation from you for any matter. Remember that even cabinet formation is decided by others. You need not state the obvious. Everyone knows you are only a nominal head.

3) "I am absolutely certain in asserting that I am not at all, I think,  involved in any of these transactions" :  The prime minister is not asserting that he is not involved. He is only asserting that he thinks he is not involved. A strange argument indeed. Singh is disingenuous in proffering this misleading assertion.

In putting up with Raja for an inordinately long time, proposing P J Thomas as CVC despite Sushma Swaraj's reasoned dissent and denying any knowledge of parliamentary corruption, Singh has let down the nation very badly. He has behaved like a venal politician and not like a noble statesman.

Rajat Gupta goes aggressive

Rajat Gupta who has been charged by SEC for insider-trading has now filed a case against SEC . His main contention is:
1) SEC seeks administrative trial against him rather than court trial thereby trying to accelerate proceedings and denying him the rights which defendants in a court case are entitled to and 2) SEC is seeking retro-active application of a law called the Dodd-Frank. He alleges discrimination and arbitrariness on the part of SEC. The counter-attack is interesting and is obviously argued by eminent lawyers.


Saturday, March 12, 2011

Will the Japanese quake throw up another Nick Leeson ?

Nicholas (Nick) Leeson was a derivatives trader in the Singapore branch of Barings Bank. After earning enormous profits for his bank (mainly through unauthorised trades), he found to his dismay that his luck was running out and that his trades (unauthorised, as usual) were becoming excessively out of the money and incurring huge losses for the bank. He did his best to hide the losses and started taking positions with the view that Japanese stocks would move up in value.

Misfortunes don't come singly. A huge earthquake struck Kobe, Japan on 17th January, 1995. The equity market in Japan crashed and Nick Leeson's attempts to recoup losses collapsed. Nick Leeson, the rogue trader, was caught napping and his notoriety became legendary. The Kobe earthquake was the turning point that caused Barings' extinction.

The present crisis in Japan is a double whammy. The Sendai disaster is a deadly combination of massive earthquake (8.9 on the Richter) and tricky tsunami. Damage to men and materials is horrendous. Has any rogue trader somewhere in the flat world taken a position that might prove fatal to some well-known financial institution ? One hopes not. But derivatives, or more particularly derivative traders, are so devious that it is impossible to rule out any unpleasant surprise.

CBI's discriminatory treatment

The officials of CBI questioned the wife and daughter of the Chief Minister of Tamilnadu on 11th March in connection with the 2G scam. There is nothing exceptional about this. But what is alarmingly discriminatory and blatantly cursory was the fact that the questioning was done not at the premises of CBI as is usually the case but at the office of Kalaignar TV. If the suspects are questioned in their own place, the CBI officials cannot even meaningfully discuss among themselves  for fear that the place may contain eavesdropping devices. Would this option of choosing the place of questioning be made available to all citizens of the country? We are a democracy, are n't we? Only in a dictatorship, such privileges are partisanly extended to cronies of the dictator.

The Supreme Court has ensured that the CBI would expedite investigations in this telecom muddle. Can it also ensure that the investigation would be fair and politically unbiassed? Only the future will tell.

Friday, March 04, 2011

Case against Rajat Gupta

SEC has issued an order instituting proceedings against Rajat Gupta, a distinguished alumnus of IIT, Delhi and Harvard Business School on charges of insider trading when he was a Director in P & G and Goldman Sachs. The order is available at the following link:


Gupta has denied the charges. A cursory reading of the order gives the impression that prima facie the charges are evidence-based. The CEO of Goldman Sachs, Blankfein has agreed to testify before the SEC.

Thursday, March 03, 2011

Vittal's inconsistent logic

The otherwise reputed former CVC Vittal shocked the nation's conscience when he voluntarily vouchsafed P J Thomas' integrity. He also welcomed the case in the Supreme Court on the pretext that we ought to know the correct legal position regarding the requirements for selection of CVC.

Now, after the verdict, Vittal acknowledges that were he a decision maker in the government, he would have desisted from supporting the appointment once the Court raised possible objections. In that event, would he not have preempted an opportunity to know the correct legal position ? Vittal could have kept his reputation intact by not rushing to his former colleague's rescue.

Supreme Court : Sentinel on the qui vive

The Supreme Court administered three well-deserved blows to the government today (3rd March). Appointment of P J Thomas as CVC was held as unlawful. The Court ordered the CBI to investigate the cancellation and subsequent restoration of 2G licence to S-Tel. The government was rapped for not being serious in its measures against black money. The Court lamented , "What the hell is going on ?"

The Court was categorical that personal and institutional integrity is an indispensable criterion in appointment of CVC. This pronouncement sounds axiomatic and unexceptionable. Spokespersons of the Congress party claim that the recommendation of the high-powered committee consisting of the Prime Minister , the Home Minister and the leader of the opposition was only an error of judgement and not clothed in mala fides. A very funny argument given the fact that the Committee chose to ignore the criminal case pending against P J Thomas and the government steamrollered its decision to spite the opposition. Mens rea was writ large.

If the Supreme Court were to call the prime minister a rascal, the Congress party would derive comfort by claiming  that he was not called a scoundrel !