Fall of the elite insiders

As crimes go, insider trading doesn’t provoke the same outrage in India as, say, spot-fixing in cricket matches. Yet, the seriousness of this offence and the collateral damage was brought home when Rajat Gupta, the revered former managing director of McKinsey, was sentenced to a jail term by a US court last October.

What makes trading on inside information so reprehensible? How did Gupta get embroiled in it? What led to the spectacular collapse of the $7 billion Galleon fund and its boss Raj Rajaratnam? This is the subject of a riveting investigative story by Anita Raghavan in The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund .

What inspired Anita, a journalist, to write a book on this case was its rich cast of Indian and South Asian characters who had made it to the highest echelons of corporate America. On a recent visit to Chennai, the young author dwelt on the various influences that shaped the book.

You start by saying that you would like to chronicle the rise of the Indo-Asian community in the US. Yet, the book portrays the community in a rather unflattering light. So many people shared insider information with Raj Rajaratnam simply because of a community feeling…

Yes, it is true that Rajaratnam was able to forge some kind of South Asian bond with Rajat Gupta and (Anil) Kumar (Gupta’s protégé) that resulted in insider information being passed to him. But the book is also about how successful these South Asians were and the positions they occupied in society. The crime would also not have been detected if these individuals hadn’t been so respected. The larger message from this story is that Indians have arrived in the US in a very permanent way. So, you have not only the success, but the crime that can come with this success.

What was the reaction you got from Indians there?

An excerpt from the book (about Rajat Gupta) ran in The New York Times . I was fully expecting negative feedback from Indians about the book painting an unattractive picture of them. But all the emails I got have been quite positive. I even had an email from a chap who said that more Indians should be involved in studying securities laws, so that they can become government prosecutors. There was no attack against me. Again that speaks to the diversity of the community in the US.

When my parents came to the US in the fifties, the Indian community was so small; you tried to be a cheerleader for the community. On the first day of the Rajat Gupta trial, my father in fact joked to me that I should go “Jai Hind, Jai Hind” in the trial (laughs). But that has changed. You can say that the community feeling (among Indians) is dissipating because Indians today feel more enfranchised in America. That speaks to strength, not weakness.

The point you make is that you can’t flout the laws of the land because you come from a different community, right?

Yes. Rajat Gupta was an assimilated Indian in America. Yes, he had great affection for India and wanted to do a lot for India. But he was not an outsider there. His family, for instance, celebrated American holidays like Thanksgiving as exuberantly as they celebrated Diwali. That is what is so stunning about this. Why he didn’t fully appreciate that if you commit a crime in America, there is no immunity from prosecution, no matter who you are. This is despite the fact that his friend Bill Clinton, the President of America, got into such trouble over an intern.

After reading the book, one feels Rajat Gupta was a victim of circumstances, probably not as guilty as Rajaratnam. Is this what you wanted to convey?

No. I agree that the book is a very sympathetic account of Rajat Gupta. But I do not believe that one can absolve anyone of personal responsibility. I do think Rajat Gupta, late in life, looked at his career and said — ‘I’ve been a McKinsey for 30 years and I’m worth a $100 million and here is the rather loud hedge fund manager who is worth a billion. How is this possible?’

That is why the story is so fascinating and tragic at the same time. Here is someone with an inspiring life story… he lost his parents and shouldered the responsibility for his family at a young age. He was this Shakespearean figure. Yet, he succumbed to this basic human frailty of greed. That is a fascinating tale.

Researching the book, I did over 200 personal interviews across the US, the UK and India. I also attended both the trials. In the US, trials tend to be very transparent. You get access to thousands of documents. I think Indian readers will find it fascinating to read about the lengths to which Anil Kumar went to make his housekeeper Manju Das seem like an offshore investor!

You have reproduced actual phone conversations and text messages between Rajaratnam and his ring of acquaintances in this book. Are these part of the regulators’ records?

Remember, this was the first white-collar crime in the US where the Feds wire-tapped conversations. So you don’t just have a crime being recreated, you get to be in the room while the crime is being committed. It’s astonishing. Imagine! If you were talking to your friend over phone, you may say so many things. So you learn not just about the passing of information between Gupta and Rajaratnam, but also about what they think of their mutual friend — Anil Kumar.

All along, we’ve thought that hedge funds had a ‘secret sauce’ to making money. But this book tells us that Galleon relied extensively on just one thing — trading on company information before it was made public. Do you think insider trading is quite prevalent in the US?

I don’t think this is everyone’s modus operandi. There are thousands of hedge funds with different strategies. Some are macroeconomic hedge funds, which can’t use insider information. But if you look at all the information flowing out of this investigation by SEC [US Securities and Exchange Commission], it is clear that despite the clean-up of the markets in the late eighties, people are back again trading on insider information.

Having reported on Wall Street for so many years and covered these trials, have you grown cynical about the markets?

I think the US capital markets are probably the most transparent in the world. It speaks to the strength of the markets that a case such as this has been brought to light. I know many people, including my family, who have made money through mutual funds that invest in the stock market. So I don’t think it is all a rigged game. But strict regulatory supervision is what makes the markets work.

The risk in India is that there is an explosion in interest in stocks, with many individuals today interested in day-trading compared to a few years ago. We had a driver who did day-trading! I think it is of paramount importance in India to have strong capital market regulations.

Overall, the message from the book is this. Rajat Gupta was such a role model for so many Indians. I was very young when Rajat was elected Managing Director of McKinsey. I remember feeling a sense of pride. I think that is the ultimate tragedy. That someone who meant hope and ambition for so many, disappointed in the end.

About the book

Can a story about hedge funds, insider trading and securities market violations make for a racy read? The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund manages this quite easily, thanks to its direct and fast-paced narrative, its many live conversations and the rich detail on the personal lives of its protagonists. Not just those in starring roles such as Rajat Gupta or Raj Rajaratnam, but also those in the supporting cast such as Raj’s informant from Intel — Roomy Khan, her husband Shakhawat and Rajat Gupta’s father Aswini Gupta, a freedom fighter.

So you learn about Rajat Gupta’s troubled childhood, his innate reticence even as he rose through the ranks at McKinsey and his niggling discomfort with Raj Rajaratnam’s brash ways, even as he forged a business association with him. Then there is Raj Rajaratnam, the powerful boss of Galleon funds and his carefully cultivated clique of South Asian friends who swapped inside information for favours. Rajaratnam may have had no qualms about insider trading, but he did have reservations about betraying his ‘friends’ to the regulators! Sticking to a queer bond of honour, the book says, he refused to divulge details about his moles after his arrest.

There are interesting good guys too. Zealous SEC investigator Sanjay Wadhwa and US attorney Preet Bharara painstakingly plod through tapes of dozens of whispered conversations to put together the case against Galleon and Gupta. The use of wiretaps in white-collar crime was a first in US history.

Then, there is the wheeling and dealing that accompanies a position in the top echelons of the corporate world. How peer pressure can force a successful individual to take undue risks with his career. How overarching ambition can force an individual into uncomfortable relationships. And the very thin line that separates informal banter between friends, from the illegal sharing of critical information, which someone can cash in for millions in illegal profit.

The book is set to be released on June 27, 2013.

(The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund; Publisher: Hachette India; Price: Rs 499)

About the author

A journalist for 18 years with Wall Street Journal , Forbes and then The New York Times Dealbook , Anita Raghavan has reported on market-moving events such as the buyout boom in Europe, the collapse of hedge fund Long Term Capital Management, and the Galleon fund and Rajat Gupta trials. Chatting about journalism makes her eyes light up — “I love meeting up new people every day and writing about them”.

Always fascinated by the rise of the Indo-Asian community in the US, Anita saw the makings of a good book when the details of the Galleon insider trading case were revealed.

Was it difficult to switch from the everyday action of journalism to the extensive research involved in this book? “My father is an academic and my mother is a librarian, and they both really wanted me to be an academic. I don’t think they fully embraced journalism,” she jokes, adding that writing this book is the closest she has come to academics. Now that she has tried it out, she plans to stay with writing in-depth stories for magazines.

As we talk about her personal impression of the case, and the involvement of the Indo-Asian community in it, Anita — like a good journalist — refuses to be judgemental. “In every community, there is a propensity for greed. It is funny how if you’re sitting in the West, you see India and China as a sort of great hope for the future. But life here is very difficult. It is a struggle to get ordinary things like water or power. People in the West have no sense of this. Because of the scarcity, when you grow up here, you negotiate life differently. I don’t think Indians are any more corrupt than anyone else, they just adapt to the situation,” she says.

Anita plans to travel more frequently to India from her home in London, now that she is freelancing. She would like to spend more time with her father.

Will she miss being in the thick of Wall Street action? “It is funny how you can adjust to a different life. I have spent most of my life in the West. But when I come here, I get used to sitting in great heat and carrying buckets of water up the stairs. Man or woman is a very adaptable creature,” says the author, ensconced in her Chennai home.

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