The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund (47 page)

After its acquisition of ABN AMRO’s prime brokerage unit in 2003:
“ABN Amro Completes Sale of US Unit Prime Brokerage to UBS,” Dow Jones International News, December 8, 2003.

One of the funds UBS serviced was Sedna Capital:
Rajarengan Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, file no. NY 7665 (hereafter Rengan SEC testimony), December 20, 2006.

Personal details and work history of Rengan Rajaratnam:
Ibid.

Description of the spat between Cohen and Rengan Rajaratnam:
Ibid.

The setup of Sedna:
Ibid.

Rengan floated the idea of creating a high-risk fund during a family vacation to Gila:
Raj Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, file no. NY-7665 (hereafter Rajaratnam SEC testimony), June 7, 2007.

And in July 2006, Rengan opened a new fund:
In his testimony to the SEC, Rengan said the fund was officially launched in August but he put money in it in late July.

“Listen, give me as much money as you are willing to lose”:
Rengan SEC testimony.

Rengan’s $700,000 investment in the new fund and details of his family’s contributions:
Ibid.;
US v. Rajaratnam
, Franks hearing, Kang Exhibit 3, citing a document provided by Sedna to SEC examiners and a UBS statement.

But Rengan’s older brother put in $1 million:
Rajaratnam SEC testimony.

Details of Sedna’s Arris trade, its profit, and Rengan’s gains:
US v. Rajaratnam
, Franks hearing, Michaelson Exhibit 19, Chronology of communication and activity in Arris (hereafter
US v. Rajaratnam
, Franks hearing, Michaelson Arris chronology); Rengan SEC testimony.

After a blockbuster first month, Rengan forced investors to redeem:
Rengan SEC testimony.

After it sold short $1.4 million shares of stock on July 26, the maximum allowable position:
Rengan SEC testimony.

After saying he wanted to be “long into the numbers,” Rengan bet heavily against Arris:
Rengan SEC testimony.

On July 27, Arris’s stock fell nearly 20 percent:
Interactive Data via FactSet Research Systems.

Rengan, the only investor in the fund, netted $270,000:
US v. Rajaratnam
, Franks hearing, Michaelson Arris chronology said Rengan made over $250,000 and Sedna locked in a profit of more than $1.1 million.

“u r my heroine”:
US v. Rajaratnam
, Franks hearing, Michaelson Arris chronology.

“It definitely feels like there are less quality women out there”:
“Bachelors Compete for Dwindling Supply of Bachelorettes,” FoxNews.com, December 27, 2001.

“Arris [thank you] for getting us out”:
US v. Rajaratnam
, Franks hearing, Michaelson Arris chronology.

Sedna was engaged in cherry picking:
In
US v. Rajaratnam
, Franks hearing, October 5, 2010, Andrew Michaelson said in his testimony that the investigation at first was primarily focused on cherry picking.

Explanation of cherry picking:
Ibid.

A sprawling investment metropolis of more than sixty-five hundred hedge funds managing $1.1 trillion in assets:
Hedge Fund Research Inc.

“Our adolescent hormones and new-found freedom formed a dangerous mixture”:
Harbinder Gill testimonial, Friends of Rajat Gupta website.

Details on the Gupta family after their mother died:
Sreenath Sreenivasan, “The Superboss: How Did McKinsey’s Rajat Gupta Become the First India-Born CEO of a $1.3 Billion US Transnational?”
Business Today
, April 22, 1994; letters written by Jayashree Chowdhury (hereafter Jayashree Chowdhury sentencing letter) and Kanchan Gupta (hereafter Kanchan Gupta sentencing letter) on behalf of their brother ahead of his sentencing; author interviews.

The description of IIT Delhi in the sixties and the change in its cachet:
Drawn from interview with Shashi K. Gulhati, February 2, 2010; Gulhati, “A Double Tribute,” written in 2011 for IIT’s Golden Jubilee, and
The IITs: Slumping or Soaring
(Macmillan India, 2007), 4.

“When I finished IIT Delhi”:
Interview with Vinod Khosla by Lesley Stahl, “Imported from India,”
60 Minutes
, CBS News, March 2, 2003.

The list of IIT graduates and their positions today:
Chandrani Ghosh, “Boot Camp for Engineers,”
Forbes
, April 16, 2001.

Narayana Murthy remark about his son:
Stahl, “Imported from India.”

Story about Indira Gandhi’s efforts to get Rajiv Gandhi into IIT Delhi:
Interview with Kanta Dogra, February 4, 2011.

Rajiv Gandhi did not receive a degree from Cambridge or Imperial College:
Ved Mehta,
Rajiv Gandhi and Rama’s Kingdom
(New Haven and London: Yale University Press, 1994), 70.

Gupta was one of sixty-two students:
Gill testimonial.

The standoff between Dogra and the students at IIT Delhi and Gupta’s role:
Interview with Anjan Chatterjee, March 13, 2012. His account is confirmed by others at IIT at the time.

During his five years at IIT, he acted in seventeen plays:
Sreenivasan, “The Superboss.”

“You must have felt terrible”:
Chatterjee interview.

Anita Mattoo’s family background and her impression of Rajat:
Letters written by Anita Gupta on behalf of her husband ahead of his sentencing and by Girja Madan, who is related to Gupta’s wife.

Indian law requiring companies to dilute their shareholdings in Indian companies to 40 percent:
“India: Curbs on Foreign Investors,” Facts on File News Services, November 25, 1970.

“All Rajat would talk to me about”:
Interview with Subramanian Swamy, April 22, 2012.

Gupta was one of two students to receive a job offer from ITC:
Gupta’s taped remarks at Creativity and Personal Mastery class (hereafter Gupta’s remarks at Creativity and Personal Mastery class), taught by Srikumar Rao at Columbia Business School, April 2004.

ITC’s history:
See the company’s website, http://www.itcportal.com/about-itc/profile/hist
ory-a
nd-evolution.aspx.

Since its founding in 1935:
See http://www.doonschool.com/the-school-and-campus/ori
gins-a-hist
ory.

Doon’s illustrious alumni:
Anita Raghavan, “The Andover of India? Graduates from Doon Score Top U.S. Jobs—Scholastic Bootcamp for Boys Raises Stars, Faces Change; Gandhi Suffered Here Too,”
Wall Street Journal
, June 3, 2006; Ed Luce, “Liberal Streak,”
Financial Times
, January 2, 2003.

Gupta described a leader as “one who can motivate”:
Sreenivasan, “The Superboss.”

Gupta’s rejection of the offer from ITC and Haksar’s reaction:
Ibid.; Gupta’s remarks at Creativity and Personal Mastery class.

Description of the SEC in the Cox era:
George Packer, “A Dirty Business: New York City’s Top Prosecutor Takes on Wall Street Crime,”
New Yorker
, June 27, 2011.

On September 21, 2006, Wadhwa received a formal order of investigation:
Government’s post-hearing Memorandum in Opposition to Defendant Raj Rajaratnam’s Motion to Suppress Wiretaps, October 27, 2010, says that in September 2006 the SEC’s Division of Enforcement began an investigation into cherry picking and insider trading at Sedna Capital Management, a hedge fund run by Rengan Rajaratnam.

Lyons, a political science graduate:
Testimony of William J. Lyons III in the Matter of Sedna Capital Management LLC, file no. NY-7665 (hereafter Lyons SEC testimony), October 18, 2006.

In late July 2006, after Hewlett-Packard agreed to acquire Mercury Interactive:
Hewlett-Packard, “HP to Acquire Mercury Interactive Corp.,” press release, July 25, 2006, http://www.hp.com/hpinfo/newsroom/press/2006/060725a.html.

The instant-message exchanges involving the “birdie” trades:
US v. Rajaratnam
, Franks hearing, Michaelson Exhibit 19, Chronology of communication and activity in Arris (hereafter
US v. Rajaratnam
, Franks hearing, Michaelson Arris chronology).

In October, Wadhwa took testimony from Lyons:
Lyons SEC testimony.

Michaelson’s background:
Packer, “A Dirty Business.”

Rengan instant message to Andrew Quinn:
US v. Rajaratnam
, Franks hearing, Michaelson Arris chronology.

In one email to Apax:
US v. Rajaratnam
, Franks hearing, Attachment A to Kang Exhibit 3 contains email from Rengan Rajaratnam to an Apax executive on July 17, 2006.

Dhar was at Arris’s headquarters in Atlanta:
US v. Rajaratnam
, Franks hearing, Government Exhibit 15, FBI memo dated June 27, 2007, to document meeting with the SEC on May 23.

It was unusual for Dhar to know Arris’s earnings before they were announced:
Ibid.

Dhar says he spoke to Rengan:
Dhar’s comment on December 12, 2012.

On July 31, 2006, Rajaratnam wired:
US v. Rajaratnam
, Franks hearing, Michaelson Exhibit 19, Chronology of trading in AMD (hereafter
US v. Rajaratnam
, Franks hearing, Michaelson AMD chronology).

That July 31 evening, at 8:32, Bloomberg News:
Ibid.

The
Wall Street Journal
, citing Bloomberg, mentioned that IBM:
Ibid.

“fuckers…screwing my picture”:
US v. Rajaratnam
, Franks hearing, Government Exhibit 32, Chronology of Polycom activity in FBI memo dated November 6, 2007, contains an excerpt of an instant-message exchange between Rengan and Raj Rajaratnam on April 18, 2006.

“see the ibm/amd news” and subsequent IM exchange:
US v. Rajaratnam
, Franks hearing, Michaelson AMD chronology.

Dell released earnings and said it would unveil desktop computers with AMD processors:
Rex Crum, “Dell Shares Fall After Weak Earnings Report,” MarketWatch, August 18, 2006.

Sedna’s friends and family fund sold the options for a $2.8 million gain:
US v. Rajaratnam
, Franks hearing, Kang Exhibit 3, Chronology of AMD trading.

The instant-message exchange between Read and Lyons:
Ibid.

“I can’t believe I am being asked to testify”:
Raj Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, file no. NY 7665 (hereafter Rajaratnam SEC testimony), June 7, 2007.

The SEC had been investigating Galleon on and off since 2003:
US v. Rajaratnam
, Franks hearing, Beaudreault Exhibit 1, Declaration of Lindi E. Beaudreault Esq. in Support of Defendant Raj Rajaratnam’s Motion to Suppress.

In 2005, Rajaratnam paid a fine of nearly $2 million to settle an SEC case:
See http://sec.gov/news/press/2005-77.htm.

On December 20, 2006, five days before Christmas, Rengan Rajaratnam, flanked by his lawyers:
Rajarengan Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, file no. NY 7665 (hereafter Rengan SEC testimony), December 20, 2006.

Michaelson’s questions and Rengan’s responses:
Ibid.

SAC Capital, run by Rengan’s former boss, Steven Cohen, did not seek the SEC imprimatur until 2012:
See SAC’s registration details on SEC website: http://www.adviserinfo.sec.gov/iapd/content/viewform/adv/Sections/iapd_AdvRegulatorStatusSection.aspx?ORG_PK=161111&RGLTR_PK=50000&STATE_CD=&FLNG_PK=023C7D0800080166007C5BF0040FFFAD056C8CC0.

Sedna got it only in January 2006:
Rengan SEC testimony.

When his brother asked how it went, he said well:
Rajaratnam SEC testimony.

He kept a jar of hot pickles in his room:
Interview with Richard Peiser, Gupta’s first-year roommate at HBS, January 11, 2013.

Notable members of HBS Class of 1973 and makeup of class:
HBS Class prospectus.

“There were a lot of Brits”:
Interview with Grover T. Wickersham, April 6, 2011.

John Carberry’s impressions of Gupta and the description of the “can group”:
Interview with John Carberry, April 19, 2011.

Tattered piece of paper with the lines from the Frost poem:
Letter written by M. Kumar on Gupta’s behalf ahead of his sentencing.

“All we ever did during those walks”:
Carberry interview.

The approach to teaching at HBS:
Interview with Fred Sturdivant, May 24, 2011.

The incident with Townsend Clarke:
Confirmed in separate interviews with Carberry and Sturdivant.

“Rajat constantly floated above this” and “if you had a problem with a case”:
Carberry interview.

“When you look at the guy, he is kind of a Nehru” and Wickersham’s subsequent remarks:
Wickersham interview.

Gupta attributing his silence to his Indian upbringing and the deal he cut with his professors:
Sreenath Sreenivasan, “The Superboss: How Did McKinsey’s Rajat Gupta Become the First India-Born CEO of a $1.3 Billion US Transnational?”
Business Today
, April 22, 1994; Gupta’s taped remarks at Creativity and Personal Mastery class, taught by Srikumar Rao at Columbia Business School, April 2004.

Carberry’s recollections of Gupta watching American football and Carson:
Carberry interview.

John Hook’s recollection of Gupta:
Interview with John Hook, May 30, 2011.

On the morning of Monday, February 12, 2007:
US v. Rajaratnam
, Franks hearing, Testimony of Lindi Beaudreault, October 4, 2010, provides details about the meeting.

She told the examiners that Galleon adhered to a very detailed policy on insider trading:
US v. Rajaratnam
, Franks hearing, Government Exhibit 150, notes of the SEC examination staff’s interview of Lindi Beaudreault and others.

Chat between Rajaratnam and Quint Slattery:
US v. Rajaratnam
, Franks hearing, Government Exhibit 17, Email from Andrew Michaelson to Lauren Goldberg and Brian Coad on June 18, 2007, with instant-message exchange between Rajaratnam and Slattery attached.

Michaelson’s probe of Rajaratnam’s possible source on Computer Associates:
US v. Rajaratnam
, Franks hearing, Testimony of Andrew Michaelson, October 5, 2010.

At the same time, an anonymous letter arrived:
US v. Rajaratnam
, Franks hearing, Government Exhibit 4, Copy of the letter.

“Is this an investigation of Galleon or an investigation of Sedna?”:
US v. Rajaratnam
, Franks hearing, Defense Exhibit 48, Deposition of Paul Yook.

Wadhwa did not answer:
Ibid.

Its employees were absorbed by Galleon:
US v. Rajaratnam
, Franks hearing, Beaudreault testimony.

On May 14, 2007, the SEC issued a subpoena to Galleon:
US v. Rajaratnam
, Franks hearing, Testimony of Lindi Beaudreault, October 4, 2010.

The firm’s lawyers canceled a scheduled SEC interview with Tom Fernandez:
On October 4, 2010, at the Franks hearing, Beaudreault testified that she telephoned Andrew Michaelson and said if he was subpoenaing witnesses she would prefer if they met once with the enforcement staff rather than have two meetings. She said her recollection was that the examination ended in late May, not in mid-May when the subpoena was issued.

The staffer found “some interesting” chatter:
George Packer, “A Dirty Business: New York City’s Top Prosecutor Takes on Wall Street Crime,”
New Yorker
, June 27, 2011.

Devised a way of asking Rajaratnam about roomy81:
Ibid.

At 10 a.m., Rajaratnam, flanked by the same two lawyers:
Raj Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, file no. NY 7665 (hereafter Rajaratnam SEC testimony), June 7, 2007.

During the course of the seven-hour deposition:
The transcript of Raj Rajaratnam’s SEC testimony says it started at 10:12 a.m. and ended at 4:54 p.m.

Michaelson’s questions and Rajaratnam’s answers:
Rajaratnam SEC testimony.

The hedge funds Rajaratnam was invested in:
Ibid.

At about 12:30, Isenberg requested a break:
Ibid.

Rajaratnam’s explanations for his AMD trades:
Rajaratnam SEC testimony.

The hedge fund paid between $30 million and $60 million to its analysts:
Ibid.; Devin Leonard, “Rajaratnam Case Shows Outmanned, Outgunned SEC on a Roll,” Bloomberg, April 19, 2012.

Michaelson’s questioning regarding roomy81 and Rajaratnam’s instant-message exchange with Apjit Walia:
Rajaratnam SEC testimony.

“Package B”:
What was meant by package B was never conclusively established and there is potential contradictory evidence. Tickets to the 2007 ICC Cricket World Cup went on sale to the public in May 2006, a few months before the IM exchange and there was a package B offered. Walia in his voluntary testimony said he never traded stocks or options in his personal capacity and that he did not have any investments in hedge funds.

The next day, June 8, 2007, the SEC issued a five-page subpoena to Galleon:
Lindi Beaudreault in her testimony on October 4, 2010, testified to the date and contents of the SEC subpoena.