The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund (51 page)

Definitions of the four stages of a man’s life in Hinduism:
Described by Ludo Rocher in
The Blackwell Companion to Hinduism
, edited by Gavin Flood (Oxford: Blackwell Publishing, 2003), 102.

Gupta’s impressing on colleagues to do the right thing and not get attached to the fruits of their labors:
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.

Statistics of McKinsey’s expanded footprint:
John A. Byrne with Joann Muller and Wendy Zellner, “Inside McKinsey,”
BusinessWeek
, July 7, 2002.

When Gupta was first elected, he ran the firm from Chicago:
McKinsey says its personnel records show that beginning in 1994 Gupta ran the firm from New York, however, an article on July 10, 1994, by Ronald E. Yates in the
Chicago Tribune
, in which Gupta was interviewed, says his colleagues were surprised by his decision to run the firm from Chicago instead of New York.

Gupta paid $6.125 million for his waterfront estate:
The
Stamford Advocate
(stamfordadvocate.com), in an article on October 26, 2011, citing records on the town of Westport’s online assessor database, said the Guptas bought their eight-bedroom, eight-bath house in 1999 for $6.125 million. It also said that the home, situated on 2.28 acres, is now appraised at $12.5 million.

Gupta was earning about $5 million a year:
Suzanna Andrews, in “How Rajat Gupta Came Undone,”
Bloomberg Businessweek
, May 19, 2011, writes that friends estimate he was earning somewhere between $5 million and $10 million.

The pressure to take McKinsey public or seed a venture fund and where Gupta felt he “made the most impact”:
Gupta’s remarks at Creativity and Personal Mastery class.

“I got a sense the firm had grown way too fast”:
Interview with Bob Waterman, May 20, 2011.

In early February 2001, just six months after President Bill Clinton invited Gupta:
For details of the dinner, see http://www.indianembassy.org/UserFiles/Old-Files/october_2000.pdf.

He and an old friend, Victor Menezes:
Celia Dugger, “Whatever Happened to Bill Clinton? He’s Playing India,”
New York Times
, April 5, 2001.

The 2008 American India Foundation spring gala and Mukesh Ambani’s remarks:
Indo-Asian News Service, May 1, 2008.

Gupta devoting 25 percent of his time to outside ventures and the benefits it brought:
Gupta’s remarks at Creativity and Personal Mastery class.

He barely got elected:
“Challenge at McKinsey,”
Economist
, March 4, 2000.

At one point, McKinsey’s annual billings to Enron exceeded $10 million:
Byrne, “Inside McKinsey.”

“There are bound to be some clients who get into trouble”:
Ibid.

Gupta helped conceive the “one-stop shop” organization:
Letter written on Gupta’s behalf before his sentencing by Suprotik Basu, a United Nations executive who worked with him on eradicating malaria.

Gupta first learned about Rajaratnam from Kumar and his donations to ISB and AIF:
US v. Gupta
, Testimony of Anil Kumar, June 4, 2012, and author interviews.

In 2003, John Byrne got a call from Davis’s handlers:
Interview with John Byrne, January 18, 2012.

“He was feeling literally crazy” and subsequent remarks by Bala Balachandran:
Interview with Bala Balachandran, May 17, 2011.

Ratan Tata’s opposition to expanding the Indian School of Business:
From the Balachandran interview. Gupta also alluded to it when he spoke at the ISB graduation address on April 8, 2006. Also see http://www.isb.edu/gradday2006/Transcript_Rajat.html.

“When I look at myself, yeah, I’m driven by money”:
Gupta remarks at Creativity and Personal Mastery class.

That is “very useful information” and the talks with Dell and Hewlett-Packard:
US v. Rajaratnam
, Testimony of Anil Kumar, March 10, 2011.

Kumar’s view on whether to buy AMD stock:
Ibid.

AMD was founded in 1969 by colorful tech entrepreneur Jerry Sanders:
See AMD website, http://www.amd.com/us/press-releases/Pages/amd_marks_its_40th-2009apr30.aspx; Don Clark, “AMD Is Making a 64-Bit Bet on Its Future,”
Wall Street Journal
, April 21, 2003.

Kumar’s relationship with AMD and its chief executive, Ruiz, and the rivalry between AMD and Intel:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

Kumar had a master’s degree in applied mechanics:
US v. Anil Kumar
, Sentencing Memorandum submitted on behalf of Anil Kumar, July 18, 2012.

Like Ruiz who after he was widowed met his wife:
Matthew Yi, “Hector de Jesus Ruiz; Passing the torch; Ruiz rises from childhood poverty in Mexico to chief executive suite at Sunnyvale’s AMD,”
San Francisco Chronicle
, April 21, 2002.

Ruiz, an engineer, was born in Piedras Negras and attended high school in Eagle Pass, where he graduated as valedictorian; he didn’t start learning English until age sixteen:
Ian King, “Ruiz’s Rise to Prominence Said to Culminate in Galleon Link,” Bloomberg, October 28, 2009, citing a profile of Ruiz on the Rice University website.

Ruiz known as “Hector the Dissector” at Motorola:
Don Clark, “AMD Founder Bets on Hammer Chips—Outgoing CEO Jerry Sanders’ Strategy Wins Support from Microsoft,”
Wall Street Journal
, April 25, 2002.

Sanders personally recruited Ruiz:
Yi, “Hector de Jesus Ruiz; Passing the Torch.”

In November 2002, Ruiz announced that the company would lay off two thousand:
Matthew Yi, “Troubleshooter; CEO Ruiz Is Shaking Up AMD to Get It Out of Red Ink While Challenging Intel,”
San Francisco Chronicle
, November 17, 2002.

“I was at the heart, inside almost the body of the company” and subsequent remarks by Kumar:
US v. Rajaratnam
, Kumar testimony March 14, 2011.

The insights about the technology space that Kumar and Rajaratnam exchanged:
US v. Rajaratnam
, Kumar testimony, March 10, 2011.

The arrangement with Manju Das:
Ibid.

On January 16, 2004, Pecos Trading received:
Ibid.

Hewlett-Packard unveiled a $400 million trial order:
US v. Rajaratnam
, Government Exhibit 947, Press release entitled “HP, AMD Join Forces to Power Server Innovation and Performance,” February 24, 2004.

The change in Rajaratnam and Kumar’s relationship after the payment of money and learning about “guidance”:
US v. Rajaratnam
, Kumar testimony, March 10, 2012.

“You will not remember to keep a list”:
Ibid.

Slipping tidbits to Rajaratnam from AMD meetings:
US v. Rajaratnam
, Kumar testimony, March 10 and 14, 2011.

Rajaratnam FedExing a package of slides on Intel to Kumar:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

Rajaratnam’s offer to pay Kumar by trading on his behalf and Kumar’s reaction to it:
Ibid.

Rajaratnam not paying Kumar for three months and the alternative pay plan:
Ibid.

The payment plan was akin to an arrangement McKinsey had with clients
: Ibid.

He owned a stake in Rosa Mexicano:
Katherine Burton and Saijel Kishan, “Raj Rajaratnam Became Billionaire Demanding Edge,” Bloomberg, October 19, 2009.

The investment in Deepak Chopra’s daughter’s company:
US v. Gupta
, Letter from Deepak Chopra on Gupta’s behalf before his sentencing.

Gupta invested in Scandent:
US v. Gupta
, Testimony of Anil Kumar, June 4, 2012.

Gupta met Trehan when he rented a guesthouse from him:
Michael Rothfeld, “Ex-Partner May Be Key to Gupta’s Fate—Fraud Trial Could Hinge on Testimony of Longtime Friend,”
Wall Street Journal
, April 25, 2012.

The creation of Voyager and details about it:
US v. Gupta
, testimony of former Galleon portfolio manager Isvari Mahadeva, June 6, 2012; Government Exhibit 2104, a Galleon worksheet on Voyager.

Three months after it was set up, Voyager’s equity stood at $58,382,958:
US v. Gupta
, Government Exhihit 2055, Voyager Funds account statement as of January 11, 2006, contained in an email sent on January 12, 2006, by Phillip Shefter at BroadStreet to Rajaratnam, Gupta, and others.

Trehan selling his investment in Voyager:
US v. Gupta
, Mahadeva testimony.

Gupta’s statements to Kumar about the asset management company he wanted to set up:
US v. Gupta
, Kumar testimony, June 1, 2012.

New Silk Route’s $2 billion fund-raising target:
Ibid.

Gupta threw in $22.5 million:
US v. Gupta
. Superseding indictment says that in 2006 Gupta made a commitment to invest about $22.5 million in a private equity fund he, Rajaratnam, and others were setting up.

Gupta’s key card access to Galleon’s offices:
US v. Gupta
, Government Exhibits 1980 and 1981.

Rajaratnam told his secretary to lie and tell Gupta that he wasn’t there:
US v. Gupta
, Testimony of Caryn Eisenberg, May 22, 2012, Defense Exhibit 8219-A, Instant-message exchange between Eisenberg and Anita Teglasi, February 29, 2008.

The priority list of investors to target for New Silk Route and the investors Gupta and Schwartz were to reach out to:
US v. Gupta
, Government Exhibit 2152, Priority List of Investors.

Kumar had already spoken to Bronfman’s brother Sam:
Ibid.

In early October 2006, Kumar sent an email with the subject line “URGENT”:
US v. Gupta
, Government Exhibit 2287, Email from Kumar to Schwartz, Saxena, Gupta, and Rajaratnam, October 6, 2006.

Kumar would receive a stake, albeit smaller than that of the others:
US v. Gupta
, Kumar testimony, June 1, 2012.

Gupta helped P&G’s Lafley sketch the company’s $57 billion for Gillette:
Duff McDonald, “Rajat Gupta: Touched by Scandal,”
Fortune
, October 1, 2010.

There was only one person Kilts and Lafley trusted:
US v. Gupta
, Sentencing Memorandum on behalf of Rajat K. Gupta, October 17, 2012.

“I hope you remember me”:
US v. Gupta
, Government Exhibit 2193, Email on September 17, 2007, from Gupta to Devlin.

Letter to Sandy Weill:
US v. Gupta
, Government Exhibit 2266, Email from Gupta to Weill, October 9, 2007.

Gupta sent similar letters to Ajit Jain, Herb Allison, John Bryan, Bill George, Marcus Wallenberg, Indra Nooyi:
US v. Gupta
, Government Exhibits 2197; 2166; 2164; 2173; 2273; 2238, fund-raising letters via email to respective individuals.

NSR succeeded in raising $1.3 billion for its private equity arm, but its capital drive for the hedge fund side failed:
US v. Gupta
, Kumar testimony, June 1, 2012.

In late 2006, Gupta moved to exercise his option in Voyager:
US v. Gupta
, Mahadeva testimony, June 6, 2012.

Gupta and Vangal were working to buy a bank in South India:
US v. Gupta
, Anil Kumar testimony, June 4, 2012.

“We still have not received total payment for Katra Finance”:
US v. Gupta
, Government Exhibit 1917, Email from Rajaratnam to Gupta, December 21, 2006.

“Our team has been chasing Ramesh’s team on a daily basis”:
US v. Gupta
, Government Exhibit 1918, Email from George Lau to Gupta, December 28, 2006.

“Rest assured please tell Raj”:
US v. Gupta
, Government Exhibit 1918, Email from Renee Gomes on behalf of Gupta to Lau, December 28, 2006.

“Anil, this can wait”:
US v. Rajaratnam
, Government Exhibit 805, Email from Peg O’Malley to Anil Kumar, September 28, 2005.

The strategic challenge for AMD and Project Super Nova:
US v. Rajaratnam
, Testimony of Anil Kumar, March 14, 2011.

Required to enter into another confidentiality agreement:
Ibid.

Sharing it with or copying was not permitted:
US v. Rajaratnam
, Government Exhibit 805, Email from Peg O’Malley to Anil Kumar forwarding an internal email dated September 26, 2005, from O’Malley to Hollis O’Brien.

Shift from Project Super Nova to Go Big:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

AMD had been a favorite of Rajaratnam’s:
Raj Rajaratnam testimony before the SEC in the Matter of Sedna Capital Management (hereafter Rajaratnam SEC testimony), June 7, 2007.

The poster board in Rajaratnam’s office and “my guy from AMD”:
US v.
Rajaratnam
, Franks hearing, Government Exhibit 89, FBI 302 Memorandum of Interview with Ali Far on April 16, 2009.

In Galleon’s lexicon, he was “the axe”:
Ibid.

“Are you absolutely sure?” and “C’mon I’m in the inner circle”:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

ATI, the Canadian tech firm founded in the early eighties by a tourist visiting from Hong Kong:
Madhavi Acharya, “Turning a Vision into a Reputation,”
Toronto Star
, October 9, 1998.

Rajaratnam taunted Kumar that he, a hedge fund trader, knew more than Kumar did:
US v. Gupta
, Testimony of Anil Kumar, June 4, 2012.

Kumar’s disclosures about AMD looking at ATI and Nvidia and the twists and turns of the talks with ATI:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

At Galleon, Rajaratnam honed the strategy of “arbitraging consensus”:
US v. Rajaratnam,
Testimony of Adam Smith, March 29, 2011.

The code names for the deal:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

Details of the McKinsey team and the price:
US v. Rajaratnam
, Government Exhibit 846, Email from Paul Roche to Bharath Rangarajan at AMD, December 31, 2005.

Paul Roche email to Kumar on December 20, 2005:
US v. Rajaratnam
, Government Exhibit 809, Email from Roche to Kumar, December 20, 2005.

Information is “red-hot” and subsequent exchanges between Kumar and Rajaratnam over AMD-ATI:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

“Buy some atyt”:
US v. Rajaratnam
, Government Exhibit 1587, Instant-message exchange between Rajaratnam and Slattery, April 19, 2006.

Quintussf was the IM handle for Slattery, who ran an unregistered hedge fund in which Rajaratnam was invested:
US v. Rajaratnam
, Franks hearing, Government Exhibit 17, Email from Andrew Michaelson to Lauren Goldberg and Brian Coad, June 18, 2007; Rajaratnam SEC testimony.

Slattery’s run-in with the SEC over PeopleSoft:
Ianthe Jeanne Dugan, “Instant Message on PeopleSoft Stings Manager,”
Wall Street Journal
, July 30, 2001.

“U are the best on it”:
US v. Rajaratnam
, Franks hearing, Government Exhibit 17, Attachment to email from Andrew Michaelson to Lauren Goldberg and Brian Coad, June 18, 2007.

Rajaratnam’s investment in Wright’s Paw Partners:
Rajaratnam SEC testimony.

The free flow of information when Rajaratnam started on Wall Street and the change with Reg FD:
Robert A. Guth and Justin Scheck, “The Network: The Rise of Raj: The Man Who Wired Silicon Valley—Fund Boss Built Empire on Charm, Smarts and Information,”
Wall Street Journal
, December 29, 2009; Jeff D. Opdyke, “Deal and Dealmakers—The Big Chill: Street Feels Effect of ‘Fair Disclosure’ Rule—Regulation Is Altering the Way Analysts Approach Their Jobs,
Wall Street Journal
, October 23, 2000.

Smith’s conversation with Rajaratnam about putting confidential information in emails:
US v. Rajaratnam
, Smith testimony, March 29, 2011.

In January 2006 Galleon had registered with the SEC:
US v. Rajaratnam
, Franks hearing, Testimony of Lindi Beaudreault, October 4, 2010.

Smith learned from his former Morgan Stanley colleague of Integrated Device Technology’s acquisition of Integrated Circuit Systems:
US v. Rajaratnam
, Adam Smith testimony, March 29, 2011.

The “Two Eyes” or “Eyes” emails and what they represented:
Ibid.

“The date is set for May 16”:
US v. Rajaratnam
, Government Exhibit 2456, Email from Smith to Rajaratnam, April 21, 2005.

Reason for sending the email only to Rajaratnam:
US v. Rajaratnam
, Smith testimony, March 29, 2011.

On June 15, Integrated Circuit and Integrated Device unveiled a $1.7 billion merger:
US v. Rajaratnam,
Government Exhibit 1675, Integrated Device press release entitled “IDT and ICS Announce Plan to Merge; $1.7 Billion Transaction Represents Opportunity to Grow Market, Improve Efficiencies,” June 15, 2005.

Galleon’s $2.7 million profit on the deal:
US v. Rajaratnam
, Government Exhibit 28, Calculation by the government of Galleon Technology fund’s profit on Integrated Circuit stock at time of acquisition.

Rajaratnam telling Smith that his former Morgan Stanley colleague was a good contact and Smith having a sinking feeling:
US v. Rajaratnam
, Smith testimony, March 29, 2011.

“Need to move quick”:
US v. Rajaratnam
. Government Exhibit 829, Email from Paul Roche to Anil Kumar, May 31, 2006.

“This rumor surfaces occasionally”:
US v. Rajaratnam
, Government Exhibit 2472, May 31, 2006, email from Galleon analyst Nadeem Janmohamed forwarding an email blast on the ATYT-AMD rumor from Genuity Capital’s David Hodgson.

Rajaratnam’s relationship with Walia:
US v. Rajaratnam
, Smith testimony, March 29, 2011.

Kumar told Rajaratnam AMD was very keen to do ATI:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

ATI’s stock jumped 6.4 percent:
Interactive Data, via FactSet Systems.

A large number of investors like Janus were opposed to the deal:
In
US v. Rajaratnam
, Government Exhibit 840, Vanessa Colella in an email to Anil Kumar and others on July 12, 2006, says “There is universal negative response to a potential deal,” and singled out Janus as writing a letter to Ruiz telling him a deal should happen only if “there is a good price.”

Rajaratnam dropping by Smith’s office on June 29 and the purpose of his visit:
US v. Rajaratnam
, Smith testimony, March 29, 2011.

In early May, Smith lunched with his former Morgan Stanley colleague who said a deal between AMD and ATI was under way:
Ibid.

That morning in late June, ATI posted third-quarter earnings and said its outlook was bleak:
“ATI Tech Posts Profit; Stock Falls on Disappointing Outlook,” Associated Press, June 29, 2006.

Smith crafted an email entitled “ATYT—what to do”:
US v. Rajaratnam
, Government Exhibit 2402, Email from Smith to Rajaratnam, June 29, 2006.

“Due to a variety of circumstances, we will need to push out the Go Big announcement”:
US v. Rajaratnam
, Government Exhibit 836, Email from Anil Kumar to Luana Pereira, July 6, 2006, containing Rangarajan’s original email to “stand down for the 10th.”

Unbeknownst to market players, AMD and ATI were still a dollar apart on price:
US v. Rajaratnam
, Government Exhibit 840.

“So july 24 is action week!”:
US v. Rajaratnam
, Government Exhibit 836, Email from Anil Kumar to Luana Pereira, July 5, 2006.

Vanessa Colella’s suggestion:
US v. Rajaratnam
, Government Exhibit 840.

On July 24 AMD and ATI announced a $5.4 billion merger:
US v. Rajaratnam
, Government Exhibit 801, Press release entitled “AMD and ATI to Create Processing Powerhouse,” July 24, 2006.

Rajaratnam had accumulated $89.4 million of ATI shares:
US v. Rajaratnam
, Brief for the United States of America, US Court of Appeals for the Second Circuit.

Galleon booked a profit of $23 million:
US v. Rajaratnam
, Government Exhibit 21, Calculation by the government of Galleon Technology and Diversified funds’ realized profit on ATI stock held at the time of acquisition by AMD.

“We are all cheering you right now”:
US v. Rajaratnam
, Kumar testimony, March 14, 2011.

In early 2007, Rajaratnam transferred $1 million from Galleon’s HSBC account:
US v. Rajaratnam
, Government Exhibit 772, Fax for $1 million transfer from Galleon HSBC account to Kumar HSBC account in India.