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Is trusting a bigger firm risky?

It's been a few months now that reports of NRI luminary Rajat Gupta being an accomplice of disgraced hedge fund manager R Rajaratnam first appeared. As the quality of the news has evolved from rumours to impending persecution, disbelief has given way to horror. Dhirendra Kumar writes.

india Updated: Mar 16, 2011 21:00 IST

It's been a few months now that reports of NRI luminary Rajat Gupta being an accomplice of disgraced hedge fund manager R Rajaratnam first appeared. As the quality of the news has evolved from rumours to impending persecution, disbelief has given way to horror.

Gupta has long been feted in India as a shining example of the best that an Indian can achieve in the world.

Whatever be the truth in this case, I think anyone accused of leaking inside information to a trader would turn out to be either innocent or to have done so routinely.

The chances of such a thing being done just the once would be pretty small. Either the investigators are completely mistaken about Gupta, or they have barely scratched the surface.

For Rajaratnam's inside-information based investment operation, insiders who are in the know about a large number of big companies (like McKinsey ex-director Anil Kumar, who has confessed) would be far more valuable than company executives who would know about just one company.

A former chief of a reputed consulting company, on the board of Wall Street's most powerful bank, Goldman Sachs, is said to be suspected of leaking information about an investment in the bank by the world's premiere investor, Warren Buffett.

The investment was designed to shore up confidence in the US financial system in the middle of the biggest financial crisis the world has seen in many generations. And the beneficiary of the leak turned out to be running the biggest known insider-trading racket on Wall Street.

Events like these raise a question in the minds of regular people to whom the higher reaches of business and finance are just media headlines.

Is this kind of behaviour common? Have the biggest names in finance become big by routinely walking on the edge of legality; and by stepping beyond the edge whenever the temptation takes them.

Perhaps there is a greater risk in automatically trusting a large company or a big reputation than there is in taking a chance on a smaller one.