The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund (43 page)

Shortly after the exam started, a proctor spotted something curious. A student with the identification number 160 was sitting in a different seat than his assigned one, where he had been sitting all morning. For the afternoon session, he had moved into the place of a candidate who was absent that day for the exam. It was a seat that was quite far away from the one he had been given. He was dressed in a fine dhoti with an elaborately embroidered border. A proctor started watching the student and suspected that he was wearing a false mustache and a pair of sunglasses. When the proctor quizzed the student, he said he could not bear the glare of the sun and so he had changed his place. The proctor told the student to return to his own seat, which he did.

After consulting with one of his colleagues, the proctor decided to ask the student for his signature to see if it would tally up with the signature on file for the student. To prevent cheating and reduce the risk of someone else sitting in for a student at an examination, the university typically asked students before an exam for their signatures, which were kept in case they needed to verify someone’s identity. The proctor found that the signatures did not match.

The view among the proctors was that the man was not the real candidate but someone impersonating him. One asked the student to fill in a blank application form when he submitted his answer papers at about 4 p.m. When he did, two of the proctors advised the student to see the presiding officer in charge of the exam hall that afternoon before taking his leave. But the student paid no heed and hurried down the staircase, taking off along Colootolla Street, a busy thoroughfare.

The proctors gave chase, one of them yelling, “Thief, thief,” as the student ran out of the building. They followed him until he slipped and fell on the pavement outside. When the three proctors pinned him down, they found that his mustache and sunglasses were gone. The proctors escorted the man to the office of the university controller. After the proctors filled the controller in on what had transpired, he asked the young man his name.

“Ashwini Kumar Gupta,” he replied.

On questioning, Gupta admitted that during the final two papers of the economics examination for the bachelor of arts degree, he had impersonated a student who was assigned the identification number 160. When the controller asked Gupta why he sat in the student’s place for the exam, Gupta said the boy, whom he tutored privately in economics, had asked him to do so. Gupta was sent home to wait.

A few days later, the police visited Gupta at his home in North Calcutta and arrested him. In his possession they found, among other things, a dhoti and one Calcutta University examination admission card with the identification number 160, which belonged to the student who was supposed to be taking the exam that day. The “dhobi mark” on his clothes—the telltale sign left by Indian washermen to show which clothes belong to different clients—matched the same mark on the clothes that Gupta’s student was wearing when he surrendered a few days later. The similar marks suggested that Gupta was wearing his student’s clothes in an effort to appear like him. As the police dug into the case, they found that on the morning of the exam, Gupta had asked his bosses at Ripon College for casual leave because he was suffering from diarrhea. He had earlier gone to his barber, where he had his hair dyed, clipped, and curled, ostensibly to conceal his real identity.

The subsequent case was a cause célèbre in Calcutta. For two weeks, newspaper readers feasted on daily reports of the happenings in court, which one paper carried under the headline “Professor and Pupil on Trial.”

Gupta denied all the charges and said he had been framed. Nevertheless, on December 4, 1935, a Calcutta magistrate found Gupta guilty of both counts on which he was charged: cheating the registrar of Calcutta University by pretending to be someone else, and forging the economics examination papers. Gupta was sentenced to six months’ hard labor. Gupta appealed, but in April 1936, his sentence was upheld by the Calcutta High Court. The appellant took a “defense which was entirely false and unworthy of a person of his status in society,” the court ruled.

What the court and the public didn’t know was that his defense may have been the only course open to an honorable man. Gupta had stood in for his student, who paid him 50 rupees a month to be tutored, in the Calcutta University exam. Gupta had accepted the payment in an apparent effort to help raise money for the Socialist Party. Ashwini Gupta appeared to have committed an ignoble act for what only his close associates knew to be a noble cause, love of country, while three-quarters of a century later his son would throw away a noble reputation for an ignoble cause.

Before Judge Rakoff prepared to pass sentence, Gupta moved to the second chair at the defense table and addressed the court.

“The last eighteen months have been the most challenging period of my life since I lost my parents as a teenager,” he said, looking strained as he spoke. “I have lost my reputation that I have built over a lifetime. The verdict was devastating to my family, my friends and me. Its implications to all aspects of my life—personal, professional and financial—are profound…Anita’s and my daughters’ happiness means more to me than anything else…We are a close and loving family. They have had to endure a barrage of negative press about their father and husband, unkind comments from their colleagues and classmates, uncertain prospects for their future careers and a host of other negative outcomes. It is unbearable to me to see how much they have suffered. I just feel terribly that I have put them through this.”

As he came before the court to be sentenced, Gupta said, “The overwhelming feelings in my heart are of acceptance of what has happened, of gratitude to my family and friends, and of seeking forgiveness from them all.”

After a short break, Judge Rakoff returned. The government was seeking a term of incarceration of as many as ten years. In lieu of a prison term, Gupta wanted to be sent to Rwanda so that he could “work with rural districts to ensure that the needs to end HIV, malaria, extreme poverty and food security are implemented.”

Judge Rakoff rejected both recommendations. The immense loss of stature Gupta had suffered meant that severe punishment was unnecessary to keep Gupta from transgressing again; however, a sentence of probation alone would not have the desired effect of deterring others to commit similar acts in the future. While there was no need to prove motive at trial, Judge Rakoff speculated on it in his sentence, saying that Gupta, for all his charitable works, “may have felt frustrated in not finding new business worlds to conquer.” In Judge Rakoff’s mind, “there is no doubt that Gupta, though not immediately profiting from tipping Rajaratnam, viewed it as an avenue to future benefits, opportunities and even excitement.”

As he arrived at his sentence, the judge touched on the seemingly contradictory and perplexing threads in the life of the defendant who stood before him.

“The Court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their time of need,” Judge Rakoff pronounced. “But when one looks at the nature and the circumstances of the offense, the picture darkens considerably. In the Court’s view, the evidence at trial established, to a virtual certainty, that Mr. Gupta, well knowing his fiduciary responsibilities to Goldman Sachs, brazenly disclosed material, non-public information to Mr. Rajaratnam at the very time, September and October 2008, when our financial institutions were in immense distress, and most in need of stability, repose and trust.” Gupta’s tipping of Rajaratnam of the $5 billion investment by Warren Buffett “was the functional equivalent of stabbing Goldman in the back.”

At 4 p.m., two hours after Gupta had first entered the courtroom, Judge Rakoff imposed his sentence: two years in prison. Then he picked up a stack of papers and walked off the bench with a flourish, leaving Gupta and his glittering accomplishments—IIT, HBS, McKinsey—forever tarnished. As Gupta sat expressionless next to his lead lawyer, Naftalis, he was as lost and laid bare as he’d been when he cremated his father at the age of fifteen. Ashwini Gupta had begun his career with a disgrace and ended it as an intimate of the first prime minister of independent India. Five thousand miles away and fifty years later, his son would rise to become a confidant of CEOs and heads of state yet end up disgraced in America. He would be remembered as a disappointment to the Indians to whom he had once been an inspiration, and he would turn into an all-too-easy excuse for prejudicial Americans to dismiss his moral lapse as indicative of the Indian national character. Far from the charmed life of the twice blessed, he would be cursed to live out a sentence of lifelong regret and self-reproach, a punishment more onerous than any a judge could impose.

At 12:30 p.m. on December 5, 2011, Raj Rajaratnam surrendered to authorities at the Federal Medical Center Devens, forty miles west of Boston. Upon arrival he was fingerprinted, photographed, strip-searched, and issued a number that in his new life would serve as his identity. He was then led to his living quarters, a ten-foot-by-ten-foot cell with a desk, seat, toilet, sink, wall locker, and bed. Seven months into his sentence, it appeared that prison was having a salubrious effect on him: overweight most of his adult life, Rajaratnam is looking lighter these days, reported a visitor.

During his heyday as a hedge fund titan, Rajaratnam was bombarded with callers and visitors every day. Now in prison he bemoans the fact that his rich and powerful pals no longer visit or take the time to stay in touch. Their reticence is a reflection in part of the fickle world of Wall Street’s transactional friendship, but it is also a fear of taint by association.

Rajaratnam’s friends and even his family know that the government’s probe into insider trading at hedge funds is far from over. In March 2013, prosecutors indicted Rajaratnam’s kid brother Rengan, whose suspicious trading at Sedna triggered the SEC’s investigation into Galleon in the first place. The SEC filed a parallel action. Rengan, who now lives in Brazil, was charged with trading on inside information in many of the same stocks, Advanced Micro Devices and Clearwire, that his elder brother Raj was convicted of in May 2011. At one time, being a friend of Rajaratnam’s was a point of pride, but today it is a liability, so much so that rival hedge fund managers get their handlers to call the press to play down any suggestion of a relationship. The irony, of course, is had it not been for Rajaratnam’s notion of “honor,” a bond among thieves, they too could be sitting exactly where Rajaratnam is—in a lonely jail cell. Even with his own future at stake, Rajaratnam refused to cooperate with the government. In an interview he granted after he was arrested, he assailed the South Asians swept up in the case, singling them out for their lack of honor.

“The Americans stood their ground. Every bloody Indian cooperated—Goel, Khan, Kumar,” he railed in
Newsweek
magazine. (Rajaratnam was not entirely correct; one of his carefully groomed protégés, Adam Smith, cooperated and testified at his trial, but he was never one to let the facts get in the way of a good story.)

Nearly a year into Rajaratnam’s sentence, the newest heavy hitter on his legal team, Patricia Ann Millett, stood in a large ceremonial courtroom in the federal courthouse at 500 Pearl Street and made the case for a reversal of his conviction. Millett was impressive. “In this case, you had cascading errors” in the wiretap affidavit, she declared. One of the most glaring, a central pillar on which Rajaratnam’s lawyers were seeking a reversal, was the “wholesale omission” of the SEC investigation of Galleon and the results of the probe. Just as Manhattan US attorney Rudolph Giuliani pioneered the use of the racketeering statute to go after bankers and traders, the Rajaratnam case was the first time prosecutors had ever resorted to wiretaps to snare a white-collar defendant. Since Rajaratnam’s arrest, the government had gone to the wiretaps time and time again to build cases against a new and even bigger set of names in the hedge fund industry. And without the wiretaps, the government may not have succeeded in the Gupta case. Gupta was acquitted on two counts where there were no wiretaps.

As Millett spoke, a lawyer who spearheaded the government’s defense of its recordings of Rajaratnam and his ring sat in the back of the room and listened intently. By October 2012, Jon Streeter was playing for the other side as a white-collar defense lawyer at Dechert LLP. But the ruling by the panel of three appeals court judges was as important to him in his new life as it was when he was defending the wiretaps as a prosecutor. The Galleon case had revolutionized the way white-collar crimes were investigated in the United States. If the conviction and wiretaps were upheld, it would open up a gusher of new cases for attorneys like Streeter. And it would change the way they fought them. With the hard-to-dispute wiretaps to defend against, rather than the more nebulous circumstantial evidence, the case for plea bargaining was likely to be a more attractive course for all but the wealthiest of white-collar defendants. Though Rajaratnam was not in the courtroom as his lawyer Millett spoke, he had the most at stake. Unless he is successful in his appeal and is subsequently found not guilty in a new trial, he won’t be seeing his powerful pals for a while. His ten-by-ten cell will be his home until at least 2021.

In the summer of 2012, Rajaratnam’s nemesis, Anil Kumar, who provided powerful testimony against his onetime friend, was sentenced to probation. His noncustodial sentence came after prosecutors spoke at length of his “extraordinary” cooperation in helping convict Rajaratnam and his former mentor, Rajat Gupta.

After the sentencing, Kumar walked out of the federal courthouse at 500 Pearl Street a free man, with a smile on his face and holding the hand of his wife, Malvika. Their happy faces masked the fact that Kumar’s life would never be the same again. “My ability to return to my prior professional business world has disappeared totally,” he said. “I have become a pariah in that world and am followed by questions and whispers. Probity, reputation and trust were the bedrock of my life and in that I and my family have lost everything.”

Organizations that would have once boasted of his services when he was a McKinsey consultant now stayed clear of any association with him. His offers to help schools for the disadvantaged in Silicon Valley were rejected outright, and promises were broken at the eleventh hour.

In 2010, Kumar volunteered to consult pro bono to the Baylor College of Medicine in Houston, Texas, which was in financial trouble. Baylor’s president and chief executive, Dr. Paul Klotman, told Kumar that he would write a letter to the court at the time of sentencing describing the work Kumar did for the school. But when it came time to write the letter, lawyers precluded Klotman from signing it—the potential negative press for Baylor was too great.

In India, Kumar faced a warmer reception and an opportunity for rehabilitation. His old friend from the Doon School, Analjit Singh, tapped Kumar to establish a medical education initiative between his company, Max India, which offers health-care services and runs insurance companies, and Baylor. One day in the fall of 2012, just days before Gupta was to be sentenced, Kumar stopped by a friend’s house in New Delhi. He was back to his old self, regaling the friend and his guests about the inordinately long hours he was working.

Almost three years after he was arrested at his home in California, Rajiv Goel was sentenced on September 24, 2012, to probation. He had exhausted his savings paying his legal bills and was forced to sell his house in Los Altos, California, to stay afloat. Fired from Intel after his arrest, Goel has had a hard time finding a new job. In the meantime, loans from his family in India have allowed two of his children to attend the universities of their choice.

Roomy Khan, the former Intel employee who had a hard time telling FBI agents the truth, spent 2012 rehabilitating herself and her tattered reputation. Since she started cooperating with the government in early 2008, much has happened to the fifty-four-year-old Khan. In 2009, she sold her house in Atherton at a loss and moved to Florida. Despite some ups and downs, she and her husband, Sakhawat, remain married. Away from the stressful life of wheeling and dealing and nonstop entertaining she once led, Khan has lost weight. Like Goel, she too is eager to work, but for now it’s only government prosecutors who need her help. And they don’t pay.

In August, she made her debut on the witness stand in the trial of
US v. Doug Whitman
. Khan turned in a superb performance for the government. Whitman, Khan’s former neighbor in Atherton, was convicted on two counts of conspiracy and two counts of securities fraud. But her star turn for the government was not sufficient to keep her out of jail. On January 31, 2013, Judge Rakoff sentenced her to one year in prison, saying, “This is too serious. You cannot have it both ways—to cooperate and then obstruct justice.”

On Tuesday, November 20, 2012, the US attorney’s office in Manhattan and the SEC brought criminal and civil charges against Mathew Martoma, a former portfolio manager for SAC Capital Advisors, the hedge fund run by the famous trader Steve Cohen. Among the South Asian community in the United States, there was a palpable sigh of relief. After three years of unremittingly bad press about some of the community’s shining lights, it appeared that prosecutors had moved on. Judging by his name, it looked like their newest target was someone in mainstream American society. Their euphoria turned out to be short-lived. By the end of the week, Bloomberg News reported that Martoma was born Ajai Mathew Mariamdani Thomas. He was the son of Indian immigrants and had changed his name in 2003.

The fall from grace of Raj Rajaratnam, Anil Kumar, and, most important, Rajat Gupta was not just a pivotal turning point in the lives of three individuals and their families. It was an important stepping-stone in the odyssey of the twice blessed. For four decades, the South Asian diaspora in the United States had enjoyed unrivaled success. Its members were considered the new “model minority,” a community that had come to the United States with very little and, within the span of two decades, had vaulted to the highest echelons of society.

When Rajat Gupta was indicted in October 2011, Gurchuran Das, the former chief executive officer of Procter & Gamble India and the author of
India Unbound
, one of the first books highlighting India’s resurgence, articulated a worry that many Indian corporate executives in the West harbor but dare not utter.

“He has stained the India story,” Das declared.

Over the years, Indians had developed a reputation in the West as being highly effective managers. Their leadership skills were fodder for new frontiers in academic research. One book written by four Wharton School professors and entitled
The India Way
purported to tell “how India’s top business leaders are revolutionizing management.” Now, with one of the country’s most beloved icons convicted of a crime, there was hand-wringing behind the scenes about how Indians would be perceived in the future. Would the rose-colored glasses come off?

David Ben-Gurion, considered the founder of the state of Israel, reportedly once said, “In order for Israel to be counted among the nations of the world, it has to have its own burglars and prostitutes.” It is an apt analogy for the South Asian community in the United States today. When South Asians first started streaming into America in growing numbers after the Hart-Cellar Act was passed in 1965, there was a natural patriotism, a penchant for flag-waving. Ethnic newspapers like
India Abroad
sprang up celebrating Indian achievements. Among South Asians in the United States, Indians make up the single largest group.

Today, after forty years of steady and growing immigration, the community is vibrant, rich in diversity, and strong in numbers. There is no better example than Edison, New Jersey, where Sanjay Wadhwa’s parents, Arjun and Rashmi, now live. Its central thoroughfare, Oak Tree Road, is called “Little India.” Every store on the street—even the auto repair shop—is owned by an Indian-American.

Much like the Irish-Americans and the Italian-Americans in the first half of the twentieth century, Indian-Americans in the twenty-first century have emerged as a force to be reckoned with in the United States. They no longer are confined to walking the corridors of corporate America; they now stalk the halls of justice. Forty years ago, when Rajat Gupta arrived in the United States, or even twenty years ago when he ascended to the helm of McKinsey, Indian-Americans were too small in number and too invisible a group to matter. Today, as tragic and heartbreaking as Gupta’s fall from grace is, it is a sign that Indians, much like the immigrant groups before them, have attained a certain security and once unimaginable position in American society. They are large enough in number to be counted and, more important, they constitute a diverse collection of voices. No longer fearful of standing out, the children of the twice blessed are all too eager to stand up.