ISB chairman Rajat Gupta finally resigns after SEC charge

Rajat Gupta, the well known Indo-American and former managing director of McKinsey & Co has resigned from the executive board of the prestigious Indian School of Business (ISB). He was its co-founder. Gupta resigned as ISB’s chairman three weeks after the US Securities & Exchange Commission (SEC) levelled insider trading charges against him and initiated civil charges.

ISB spokesman Sriram Gopalakrishnan said Gupta had requested the ISB executive board to relieve him of his responsibilities in the board till his pending matter with the US SEC is resolved. “This, and the appointment of the new chairman, will be tabled at the upcoming board meeting on April 2, 2011,” Sriram said.

ISB’s executive board comprises top industrialists including Anil Ambani, Rahul Bajaj, Adi Godrej, L.M. Mittal, Deepak Parikh and Sunil B. Mittal, among others. ISB has campuses at Hyderabad and Mohali.

Gupta, who had served on the boards of Goldman Sachs and P&G, among many other entities, has denied the allegations and has pleaded innocent. Two days back he had filed a case against SEC for singling him out ‘unfairly and unconstitutionally’ by linking him to the scam through an administrative action instead of a law suit. The SEC has filed civil charges against Gupta to punish him in the alleged scam.

According to US SEC, Gupta deliberately passed on classified information regarding Warren Buffet’s $5-billion investment in Goldman Sachs and more such confidential information to hedge fund trader Raj Rajaratnam of the Galleon Group, who made illicit profits of over $45 million by trading in Goldman and P&G stocks.

Gupta who is contesting the charges has also resigned from the boards of American Airlines, Genpact Ltd, Harman International Industries and Hyderabad- based Public Health Foundation of India. Earlier, the ISB strongly came in his defence of Gupta. Sriram said the ISB, now in its 10th year, had built its reputation as a world- class business school.

“ It is consistently focusing on its mission of delivering the highest quality of programmes and creating cutting- edge research output,” the ISB spokesman said.

This is the second instance of the ISB hitting the headlines for the wrong reasons in connection with the insider trading related to the Galleon hedge fund. In October last, another foundermember of ISB, Anil Kumar was arrested on similar charges. Anil Kumar, who was the director of McKinsey and Co, was also one of the founding- members of the ISB and had been on the ISB executive Board. Following the exposure of the hedge fund scandal, Anil Kumar was asked to step down from the ISB Board.

The ISB’s image had taken a severe beating in January 2009, when its former dean Rammohan Rao had to step down following exposure of the ` 14,000- crore Satyam Computer Services Ltd accounting fraud by its former chairman B. Ramalinga Raju.

Kolkata- born Gupta (62) is an icon for many in India and commands considerable respect, both in the country and abroad. Gupta is the first Indian to have occupied top positions in American MNCs, such as McKinsey.