The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund

In accordance with the U.S. Copyright Act of 1976, the scanning, uploading, and electronic sharing of any part of this book without the permission of the publisher constitute unlawful piracy and theft of the author’s intellectual property. If you would like to use material from the book (other than for review purposes), prior written permission must be obtained by contacting the publisher at [email protected]. Thank you for your support of the author’s rights.

—Opening line from an epiphany hymn
by the Right Reverend Reginald Heber,
Anglican bishop of Calcutta, 1823–1826

Rajat K. Gupta—former three-time head of McKinsey and board member for Goldman Sachs, Procter & Gamble, and AMR

Anita Mattoo Gupta—his wife

Geetanjali, Megha, Aditi, and Deepali Gupta—his daughters

Ashwini and Pran Kumari Gupta—his parents

Kanchan Gupta—his younger brother

Jayashree Chowdhury—his younger sister

Kramer Levin Naftalis & Frankel

Gary P. Naftalis—Gupta’s lead counsel; a former federal prosecutor turned A-list criminal defense attorney who has represented everyone from former Walt Disney CEO Michael Eisner to Wall Street legend Kenneth Langone

David S. Frankel—longtime litigation partner of Naftalis, who represented New York State Liberal Party leader Raymond Harding in an inquiry by New York attorney general Andrew Cuomo

Robin Wilcox

Alan R. Friedman

Anil Kumar—McKinsey consultant who was Raj Rajaratnam’s classmate at Wharton and Gupta’s protégé at McKinsey

Malvika Kumar—his wife

Aman Kumar—his son

Morvillo Abramowitz Grand Iason & Anello

Robert G. Morvillo—Kumar’s lead counsel; he represented domestic goddess Martha Stewart

Gregory Morvillo—his son, who after his father’s death would start his own firm and represent Level Global cofounder Anthony Chiasson

Raj Rajaratnam—head of the Galleon Group

Asha Pabla Rajaratnam—his wife

Rengan Rajaratnam—former head of Sedna Capital and Raj’s youngest brother

Ragakanthan Rajaratnam—Galleon portfolio manager and Raj’s middle brother

Akin Gump Strauss Hauer & Feld

John M. Dowd—Rajaratnam’s lead counsel; a feisty ex-marine who also served as special counsel to three commissioners of Major League Baseball in the investigation of Pete Rose and others

Terence J. Lynam

Samidh Guha

Patricia A. Millett

George S. Canellos—director, New York office

David A. Markowitz—former assistant regional director, New York office

Sanjay Wadhwa—assistant regional director, New York office

Jason E. Friedman—senior staff attorney

John P. Henderson—senior staff attorney

B. J. Kang—special agent who was one of the arresting agents of Bernie Madoff and also worked the Galleon case

Preetinder S. Bharara—US attorney, Southern District of New York

Reed Brodsky—assistant US attorney

Andrew Z. Michaelson—special assistant US attorney on loan from the SEC

Jonathan R. Streeter—assistant US attorney

Michael Cardillo—portfolio manager

Kris Chellam—former Xilinx executive turned Galleon portfolio manager

Caryn Eisenberg—Rajaratnam’s executive assistant

Tom Fernandez—Rajaratnam’s Wharton classmate and head of investor relations

Michael Fisherman—analyst

Ian Horowitz—trader

David Lau—Rajaratnam’s Wharton classmate and Asia chief

George Lau—chief compliance officer

Ananth Muniyappa—trader

Gary Rosenbach—portfolio manager

Richard Schutte—chief operating officer

Leon Shaulov—portfolio manager

Adam Smith—Harvard Business School graduate, former Morgan Stanley investment banker, and portfolio manager at Galleon

William J. Lyons III—former Sedna trader with a weakness for instant messaging

Matt Read—Lyons’s cousin and instant-message partner

Frank “Quint” Slattery—manager of Symmetry Peak Capital

Sunil Bhalla—Polycom executive

Danielle Chiesi—New Castle Funds consultant

Rajive Dhar—executive at Arris Group

Rajiv Goel—Wharton classmate of Raj Rajaratnam and Intel Treasury executive

Shammara Hussain—former investor relations associate at Market Street Partners

Roomy Khan—former Intel marketing employee and former Galleon trader

Deep Shah—credit analyst at Moody’s Investors Service

Apjit Walia—RBC Capital Markets analyst

Lloyd C. Blankfein—chief executive

Gary D. Cohn—president

John H. Bryan—board member

William W. George—board member

Gregory K. Palm—general counsel

Steven R. Peikin—Goldman’s outside lawyer at Sullivan & Cromwell

John F. W. Rogers—Blankfein’s chief of staff and secretary to the Goldman board

Byron D. Trott—Warren E. Buffett’s banker

David A. Viniar—chief financial officer

Jon Winkelried—former president

Dominic Barton—managing director

Marvin Bower—former managing director (1950–1967)

D. Ronald Daniel—former managing director (1976–1988)

Ian Davis—former managing director (2003–2009)

Frederick W. Gluck—former managing director (1988–1994)

Herbert Henzler—former chairman of McKinsey Germany

David Palecek—McKinsey consultant

Anupam “Tino” Puri—former managing director of McKinsey
India

Paresh Vaish—former engagement manager on Hindustan Motors project

Donald C. Waite III—former head of McKinsey’s New York office

Adil Zainulbhai—chairman of McKinsey India

Walter J. Salmon—Gupta’s professor

John V. Carberry—Gupta’s suite mate

David Manly—Gupta’s late friend

It was Tuesday, November 24, 2009, and Rajat Kumar Gupta was headed to the White House for the first state dinner hosted by President Barack Obama and his wife, Michelle, the most glamorous political couple since the Kennedys. Six years had passed since Gupta had stepped down as the three-term global managing director of consulting giant McKinsey & Co., but at sixty, he was busier than ever. He sat on a handful of corporate boards—Goldman Sachs & Co., Procter & Gamble Co., and American Airlines, to name a few. His wife, Anita, had hoped his retirement from the top job at McKinsey would slow him down, but he was in the throes of building his own private equity company from scratch. Jetting from continent to continent, living out of a suitcase, he was as intent on being a game changer in private equity and philanthropy as he had been during a storied career in consulting.

Dressed in a black Nehru suit, with a red handkerchief tucked in his pocket, Gupta made his way to the white tent on the South Lawn from the gilded East Room, which served as the staging area for the dinner. At every turn, he ran into friends. He chatted with Deepak Chopra, the new age physician, who was wearing his signature gem-studded eyeglasses for the glittering gala. He mingled with Preeta Bansal, a top lawyer in the new administration, and caught up with Bobby Jindal, a former McKinsey consultant and now the Republican governor of Louisiana. Jindal, whose given name is Piyush, was born in Baton Rouge; his parents migrated to America from the Indian state of Punjab six months before he was born.

Jindal was typical of the guests at the White House that night. While the ostensible purpose of the evening was to honor the Indian prime minister, Dr. Manmohan Singh, the event also served as a barometer for how far and how fast an immigrant group had risen. In one generation Indian-Americans had vaulted from geeky outsiders to polished players in all facets of American society.

If Gupta wanted to make small talk in the security line with a Fortune 500 CEO, he could approach either GE’s Jeffrey Immelt or Indra Nooyi, the CEO of PepsiCo, who was born and bred in Chennai. If he wanted to bask in the reflected glow of a TV presenter, he could chat with Katie Couric or the Mumbai-born Fareed Zakaria. Hollywood was represented at the event. Both Steven Spielberg and the Indian director of
The Sixth Sense
, M. Night Shyamalan, whose birthplace is Pondicherry, were in attendance that night.

As one of the pioneering Indian success stories in the United States, Gupta knew almost all the Indian invitees and, as a McKinsey legend, their non-Indian counterparts too. He had worked with many and served as a mentor to others. When Neal Kumar Katyal, the principal deputy solicitor general, was in high school and getting pressure from his Indian parents to study medicine, Gupta advised him to follow his dreams. Katyal’s position in the Justice Department as one of the chief attorneys representing the government before the US Supreme Court was a testament to the heights to which Indians had risen in American society.

“As you looked around the room that night, it was breathtaking to see the diversity and depth of talent,” says Timothy J. Roemer, at the time the US ambassador to India. “There were CEOs and entrepreneurs, there were doctors, hotel owners, and writers. There were aspiring office seekers and office holders. There were people who had grown up poor in India but now they were the CEO of the company. You could feel how alive the American dream was in that room,” exults Roemer.

Gupta and the other Indian-American luminaries were either part of or the children of a generation that academic Vijay Prashad has dubbed the “twice blessed.” The first blessing was to be born after India had achieved its independence from Great Britain at the stroke of midnight on August 15, 1947. The blessing of this freedom was not just political; it was cultural too. The end of the Raj made educational and social advancement possible to a young nation throbbing with 340 million people.

The second blessing was the culmination of the civil rights struggle in the United States and the passing in 1965 of the now largely overlooked Hart-Cellar Act into law. The act—an outward-looking follow-up to the 1964 Civil Rights Act—did away with long-standing isolationist policies that severely restricted Indian immigration to one hundred people each year. Hart-Cellar meant that future immigrants would be allowed into America based on their skills and not just their countries of origin, race, or ancestry. For a generation of Indians weaned on a strict diet of education, it was a momentous breakthrough with far-reaching implications.

In the wake of the act, Indian immigration into America grew from a trickle to a torrent. Unlike the previous waves of huddled masses who took several generations to make their way from digging ditches to holding office in the statehouse, Indian immigrants were highly educated and brimming with ambition. “There is an immense, immense selectivity in the pattern of Indian migration to the United States,” says Professor Marcelo M. Suarez-Orozco, an expert on immigration and dean of UCLA’s Graduate School of Education and Information Studies. The average Indian in the United States is “ten thousand times more likely to have a doctorate” than the average Indian in India. In other words, the Indians who come to America are by and large the country’s “brightest and best,” an observation borne out even today by hard facts.

Of the 3.2 million Indians in the United States, 70 percent have bachelor’s degrees compared to just 28 percent nationally. Their median annual household income of $88,000 is almost twice what most Americans earn each year and 33 percent higher than the average income of Asians in the United States. Most of the overachievers are immigrants. In the new millennium, Gupta and other Indian-born natives were ubiquitous in every sphere of American life. They were among the country’s most promising doctors and engineers and its most successful bankers and lawyers. Some ran or were poised to run the nation’s biggest corporations—Citigroup and MasterCard. Others were contenders for top jobs at all-American companies like Warren Buffett’s Berkshire Hathaway.

None of this would have been possible had it not been for the path staked out by the likes of Rajat Kumar Gupta. He was the most accomplished representative of an entire generation of strivers. He cleared an eight-thousand-mile path to the United States for hardworking Indian émigrés. Through his exemplary career—and without ever consciously choosing to do so—he broke down America’s prejudicial business barriers and served as a model not only for his peers but for their sons and daughters too.

In the weeks before the White House dinner, there was much handicapping about who would be asked and whether previous guests to state dinners with Indian prime ministers would be asked again. In the bruising politics of the Beltway, the drop-offs were more widely publicized than the invitees and the absences—the most notable being Citigroup chief Vikram Pandit—talked about in hushed, funereal tones.

There was never any question that Gupta would be invited. He was one of the few Indians in America who waltzed through vastly different worlds, business and philanthropy, in India and America, without ever losing a step. He was friends with almost all the Indian businessmen accompanying Dr. Singh on his trip to the United States. He was close to Mukesh Ambani, the head of the powerful Indian conglomerate Reliance Industries, who viewed Gupta as one of India’s most treasured exports, someone who had reached the pinnacle of corporate and public life in the United States but had never lost his affection for his homeland. He knew Ratan Tata, often described as the David Rockefeller of India. Tata, whose holdings run the gamut from cars—Jaguar Land Rover—to hotels—Mumbai’s iconic Taj Mahal Palace hotel—had worked early on to help Gupta turn his dream of an Indian business school into reality.

But Gupta’s most important relationship—one that certainly helped secure an invitation that evening—was his friendship with the guest of honor, Dr. Singh. Gupta was one of the few Indian executives in America who could get the Indian prime minister on the phone on short notice. Despite McKinsey’s prominence in India, the two were not acquainted in the early 1990s when Gupta was a rising star at McKinsey, and Singh, then a little-known finance minister in a previous Indian government, was the architect of a fusillade of economic reforms that dismantled the Red Tape Raj and ushered in an era of entrepreneurial freedom. But when India prospered in the wake of Singh’s moves, McKinsey thrived, advising a raft of Indian companies on restructuring moves and playing a pivotal role in building “Offshore-istan.”

It was during Gupta’s time as managing director that McKinsey opened its groundbreaking “Knowledge Center” in a suburb of New Delhi, hiring a fleet of Indian researchers, many with MBAs, to analyze important trends such as cellular phone penetration for McKinsey consultants.

When the McKinsey Knowledge Center turned out to be a huge hit, Gupta went global with the idea. He preached the sermon of offshoring to American companies eager to cut costs and pushed them to send more and more of their back-office and support work—corporate research, legal transcription, and financial analysis—to India. Clients were thrilled, and in India, Gupta was a corporate rock star, just as recognizable in Mumbai as Jamie Dimon is in New York.

It was no small irony, then, that one of his dinner companions at the White House that evening was labor leader Andy Stern, the president of the country’s second-largest union (the Service Employees International Union). Stern, whose organization spent the most money supporting Obama, sat between Gupta and his wife, Anita, at a table sumptuously decorated with gold charger plates and purple and magenta arrangements of roses, sweet peas, and hydrangeas on green-apple tablecloths. Over a dinner of green curry prawns, collard greens, and coconut-aged basmati rice, Stern took the opportunity to nudge a key party some consider responsible for the fading prospects of the American worker. He pressed Gupta on why companies like Goldman, whose investors include public pension plans, didn’t have more regard for the worker. In his soft-spoken but firm way, Gupta insisted they did. They gave a lot of money away to needy organizations. But Stern had something more radical in mind—profits more broadly distributed to rank-and-file employees.

Overhearing the debate were Gupta’s dinner companions Treasury secretary Timothy Geithner and North Dakota senator Kent Conrad. It was heady company. If anyone had told Gupta back when he was a little boy in Calcutta that he would someday work at—let alone run—McKinsey & Co. and be invited to the White House for dinner, they might have had an easier time convincing him that he would walk on the moon. The heights he had attained would only serve to make the events that followed all the more unfathomable.

Seventeen days later, as Gupta rushed through airport security with his carry-on in tow, his cell phone rang. The caller on the morning of Friday, December 11, 2009, was Gregory K. Palm, the general counsel to Goldman Sachs & Co. Gupta had been a board member since 2006, and at least once a quarter, he would hear from Lloyd Blankfein, Goldman’s chief executive. Blankfein considered it a key part of his job to post his board of directors on the quarterly goings-on at the bank. But it was rare for Gupta to hear from Palm alone.

At Wall Street investment banks, general counsels are often among the most powerful (yet invisible) members of the leadership team. They are the keepers of secrets. They know where the corporate bodies are buried. Palm was extraordinarily discreet. Even though he was one of the firm’s most influential and highest paid executives—since 2002, Goldman had awarded him stock and options worth $67.3 million—Palm kept a very low profile. Many of the bank’s thirty-three thousand employees didn’t even know who he was.

Like Blankfein and Gupta, Palm came from modest means, a case study in American meritocracy. He was an electrician’s son who won the National Science Foundation fellowship award at the Massachusetts Institute of Technology. After MIT, Palm headed to Harvard, where he enrolled in its joint JD/MBA program. He was actually in Gupta’s class at Harvard Business School. (The two were in different sections and didn’t know each other.) In 1992, after a decade working for Goldman’s outside legal counsel, the whitest of white-shoe firms, Sullivan & Cromwell, Palm joined Goldman.

When Palm reached Gupta, his tone was unusually serious; he said there was something important he wanted to discuss with the respected Goldman director.

The night before, Palm had been sitting in his corner office overlooking the Statue of Liberty, on the thirty-seventh floor of One New York Plaza, wrapping up for the day. It was dark and most of his colleagues had left when Goldman’s outside lawyer from Palm’s old firm, Steven R. Peikin, called. Like many before him, Peikin worked for nearly a decade in the US attorney’s office for the Southern District of New York. He rose to head the Securities and Commodities Fraud Task Force before moving to Sullivan & Cromwell, where he now guarded the interests of one of the banks he used to scrutinize. Peikin told Palm that he had learned through the legal grapevine that there was evidence floating around that could draw Goldman director Rajat Gupta into an insider trading case.

The next morning, as Gupta prepared to catch a plane, Palm went to brief his boss at the bank’s headquarters, then at 85 Broad Street. Blankfein was surprised to hear what Palm had to say. Gupta had impeccable credentials and a sterling reputation. “We need to figure this out,” Blankfein told Palm. Goldman was under considerable scrutiny after the 2008 financial crisis. More bad press was the last thing the firm needed. “This is something that is obviously serious, but we don’t know a lot here.

“[Whatever you do], let’s make sure we don’t ruin Gupta’s reputation.”