Tag Archive for 'Insider-trading'

The Outsider

Suketu Mehta, journalism professor and Maximum City author, interviews Raj Rajaratnam in Newsweek. From The Daily Beast:

Raj Rajaratnam

It was 6 a.m. on Oct. 16, 2009, and Raj Rajaratnam, head of the Galleon Group hedge fund, was at home on his exercise bike looking out over Manhattan’s Turtle Bay, thinking about how many shirts he would have to pack for his trip to England that day. He was to go there to launch a $200 million fund to invest in the Sri Lankan stock market, in which he, the richest Sri Lankan on the planet, was the biggest single investor.

At 6:30 his doorbell rang. He answered it to find a number of policemen and men in suits outside. An FBI agent named B. J. Kang told him he was under arrest for insider trading. There were five other agents with him, come to collect Rajaratnam. They asked if he had a gun, if he had drugs on the property. For a moment he was afraid they would plant something.

As they led him away from his family, Rajaratnam says Kang told him, “Take a good look at your son. You’re not going to see him for a long time.” He added, for good effect, “Your wife doesn’t seem so upset. Because she’s going to spend all your money.”

The interrogation, at the FBI office in lower Manhattan, lasted eight hours. They put a laptop in front of him and pressed a button. He heard the voice of his wife picking up his home phone. “Hello?” Then they clicked on another button and his voice came on, on his cellphone, talking to his Wharton classmate and friend Anil Kumar, discussing business matters at McKinsey, where Kumar worked. On the same day, Kumar and another Wharton classmate, Rajiv Goel, were charged with insider trading.

Two FBI agents, wearing prominently displayed guns, played good cop, bad cop. They thumped tables, jumped up and down, told him, “Just say you did it to one count!” But the suspect—who chose not to call a lawyer—was uncooperative. “In my head I was saying, ‘You can’t intimidate me! I’m from Sri Lanka’?”—where prisoners have to deal with much worse. They wanted him to turn in other hedge-fund managers. They wanted him, especially, to wear a wire and tape his conversations with Rajat Gupta, the former CEO of McKinsey. Gupta, whom Rajaratnam refers to as a “first-class guy,” was the most respected Indian executive in the U.S. More:

Criminal charges for Rajat Gupta, ex McKinsey Head

From the New York Times:

United States prosecutors are expected to file criminal charges Wednesday against former McKinsey head Rajat K. Gupta, in connection with the Galleon Group insider trading case, The New York Times’ DealBook reports.

Mr. Gupta, 62, “has been under investigation over whether he leaked corporate secrets to Raj Rajaratnam, the hedge fund manager who was sentenced this month to 11 years in prison for trading on illegal stock tips,” DealBook said.

The charges would mean “a stunning fall from grace of a trusted adviser to political leaders and chief executives of the world’s most celebrated companies.” More:

The background story in Bloomberg: Gupta, 62, led McKinsey, the global consulting firm, from 1994 to 2003. He sat on the boards of some of the largest multinationals, including Goldman Sachs and Procter & Gamble Co. He raised millions of dollars for charity, hung out with the Prime Minister of India, and attended President Barack Obama’s first state dinner at the White House. He divided his time between a waterfront home in Westport, Connecticut, that once belonged to J.C. Penney, a Manhattan apartment, and a Florida getaway.

Rajat Gupta pleads not guilty in insider trading, released on $10 mn bail

The modern face of insider trading

The sentencing of Raj Rajaratnam for insider trading marks the denouement in an extraordinary fall from grace. In Wall Street Journal, Susan Pulliam and Chad Bray have the story.

Raj Rajaratnam’s remarkable journey from Sri Lanka to the heights of the hedge-fund world to felon ended Thursday when he was sentenced to 11 years in prison, the longest-ever term imposed in an insider-trading case.

In a defining moment for the government’s campaign to stamp out what it describes as rampant illegal trading on Wall Street, U.S. District Judge Richard Holwell in New York said during sentencing that the billionaire investor’s crimes “reflect a virus in our business culture that needs to be eradicated.” The judge also ordered Mr. Rajaratnam, who was convicted of securities fraud and conspiracy in May, to pay a $10 million fine and forfeit $53.8 million. The defense plans an appeal. more

Preet Bharara takes on Wall Street

In The New Yorker, a fascinating article on Raj Rajaratnam, head of the Galleon hedge fund arrested on allegations of insider trading, and  the prosecutor Preet Bharara:

"Bharara is the son of a Sikh father and a Hindu mother who moved from Pakistan to India after partition; he is married to the daughter of a Muslim father who moved from India to Pakistan after partition and a Jewish mother who was born in Israel."

In the fall of 2003, Anil Kumar, a senior executive with the consulting firm McKinsey, and Raj Rajaratnam, the head of a multibillion-dollar hedge fund called Galleon, attended a charity event in Manhattan. They had known each other since the early eighties, when, as recent immigrants, they were classmates at the Wharton School of Business, in Philadelphia. Their friendship, intermittent over the years, was based on self-interest rather than on intimacy. Kumar, born in Chennai, formerly Madras, India, was fastidious and morose, travelling at least thirty thousand miles a month for work, and seldom socializing. Rajaratnam, a Tamil from Colombo, Sri Lanka, was fleshy and dark-skinned, with a charming gap-toothed smile and a sports fan’s appetite for competition and conquest. Kumar was not among the group whom Rajaratnam took on his private plane to the Super Bowl every year for a weekend of partying. “I’m a consultant at heart,” Kumar liked to say. “I’m a rogue,” Rajaratnam once said. Kumar had the more precise diction and was better educated, but Rajaratnam was one of the world’s new billionaires and therefore a luminary among businessmen from the subcontinent. In an earlier generation of immigrant financiers, Kumar would have been the German Jew, Rajaratnam the Russian. Kumar might have felt some disdain for Rajaratnam, but Rajaratnam’s fortune made him irresistible.

McKinsey executives, in an attempt to cash in on the explosive growth of hedge funds, had recently sent Rajaratnam several e-mails proposing that Galleon hire the company to provide expert advice. Rajaratnam had ignored them. Leaving the charity event, Kumar expressed annoyance about the unanswered e-mails, he later recalled. Rajaratnam pulled him aside. “I’d much rather have you as a consultant than McKinsey,” he explained. “And I am willing to pay you half a million dollars a year.” Kumar replied that McKinsey forbade outside consulting, but Rajaratnam persisted, appealing to Kumar’s pride: “You work very, very hard, you travel a lot, you are underpaid. People have made fortunes while you were away in India, and you deserve more.” He noted that Kumar, who provided strategic advice to Silicon Valley technology companies—one of Rajaratnam’s investing specialties—possessed knowledge that was worth a lot of money. Kumar had only to keep a list of “ideas,” and to call him once a month or so. “I know you will do that if you get money from me,” Rajaratnam said. “And I know you will not remember to keep a list if you don’t get money from me.”

Kumar agreed to be paid a quarterly sum of a hundred and twenty thousand dollars. To evade the scrutiny of McKinsey and of the government, he followed Rajaratnam’s instructions and set up a Swiss bank account for a shell company in Geneva called Pecos Trading, which transferred the quarterly payments, through offshore banks, to a Galleon account under the name Manju Das. This was Kumar’s housekeeper in Saratoga, California, who also cared for his ill son. “Lots of people set up offshore companies,” Rajaratnam said, trying to alleviate Kumar’s squeamishness. More:

Lessons in Rajat Gupta’s phonecall

Shoba Narayan in Mint:

Why would a person who has spent a lifetime and a stellar career keeping client confidences break off from a board meeting to make a call to a hedge fund manager? If it was a misstep, could he have somehow intuited it and stopped himself? Perhaps he was simply returning a phone call that he didn’t need to at that moment? Could he have realized that his mind was playing perverse tricks on him; that he was making avoidable mistakes?

Is Rajat Gupta culpable? That’s for the US federal court to decide in the highly watched insider trading case against the billionaire founder of the Galleon Group, Raj Rajaratnam. The word on the street is that Gupta may have been guilty of “over-socializing”, but nothing more. The more interesting question is this: Why now? Why did this happen to Gupta now, after retirement, especially since, as he has said, he spent a career being discreet? As Gupta wrote in his impassioned letter to the dean of the Indian School of Business (ISB), which he co-founded: “I have spent my entire professional career zealously guarding the confidences of my clients. There is no reason for me to suddenly deviate from a lifetime of probity and honour.” More:

The man who wired Silicon Valley

An examination of the career of Raj Rajaratnam, the founder of the Galleon Group, career reveals how, for two decades, he persuaded executives at some of America’s most prominent companies to risk their careers by passing corporate secrets. From The Wall Street Journal:

Raj Rajaratnam liked to tell people that his first name meant “king” in Hindi, and, coupled with his last name, that made him “king of kings.”

He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who’d call you an “idiot” or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?

In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America’s rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam’s business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts. More:

Desi vs. Desi

S. Mitra Kalita on how the Galleon insider-trading scandal reflects how far a community has come. In the Wall Street Journal:

It seems like a courtroom drama made for Bollywood: The Sri Lankan hedge-fund kingpin being prosecuted by a fellow immigrant, the Indian-born U.S. attorney for Manhattan.

But the case against Raj Rajaratnam is very much an American story. Mr. Rajaratnam, the billionaire founder of the Galleon Group, and Preet Bharara — the Indian-born, Ivy League prosecutor – are both South Asian, a term that actually gained popularity (and possibility) overseas to refer to the collective people from India, Pakistan, Sri Lanka, among others. The relatively small immigrant group has formed a power elite in the U.S., from positions in corporate boardrooms to the governor’s mansion.

An estimated 2.5 million Indians live in the U.S., less than 1% of the total population. Yet their median income is a whopping 80% higher than the average American’s.

And in recent years, South Asians have found disproportionate success in technology and financial services, businesses at the core of the insider-trading allegations unveiled last week. More: