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

by Anita Raghavan

  Rajaratnam knew that Goel had not prospered in the way he had since leaving Wharton. Like Kumar, Goel returned to work in India at the wrong time (when the lumbering Indian economy was still muddling along) and came back to the United States as Silicon Valley started to crest. He missed out on the Indian boom and all the riches that fell to entrepreneurs who staked their futures on it, and he came back to a California that was so effervescent it would take years before he and his wife could even afford to buy a house.

  Sensing that Goel felt left behind, Rajaratnam tried to help whenever he could. In 2005, Goel asked Rajaratnam if he would trade stocks on his behalf in his brokerage account.

  “You’re a star trader,” Goel declared. “I don’t know how to trade stocks…Can you help me make some money?” Rajaratnam readily agreed. To make it easier, Goel gave him the log-in details and the password to his account at Charles Schwab. It never would have occurred to him not to trust Rajaratnam with his personal financial details. If there was a friend he trusted, it was Rajaratnam.

  It was around this time that Goel was feeling more settled at Intel. After being promoted to director a year earlier, he planned on buying his first house in California. The property he and his wife, Alka, liked was in Los Altos, an elegant suburban village outside San Francisco known for its stellar schools. Goel was nervous about the investment and worried it was way above his budget. At the time he was making around $400,000 a year. When Rajaratnam saw that Goel dithered, he stepped in.

  “Hey, I can help you,” Rajaratnam said. He lent Goel $100,000 for the down payment on a four-bedroom house with a landscaped garden and pool. Even with the outlay from Rajaratnam, Goel struggled to buy the $2.1 million property. He borrowed $1.68 million from the bank to finance his new house. Though he promised to pay back the personal loan to Rajaratnam, he never did.

  The relationship between the two deepened a year later when an unexpected calamity hit Goel. His father, who was in his late eighties, was hospitalized and put in intensive care. Goel flew to India several times and even took to sleeping on the hospital floor to keep an eye on his dad. At one point, he confided in Rajaratnam that something had been preying on his mind: if his father died and the family property had to be divided, would he and his brother be able to keep their dad’s apartment, which was valued at as much as $1 million? Without giving it a second thought, Rajaratnam wired $500,000 from a bank account that he and his wife had at Chase Manhattan Bank. Goel had never seen so much money in his life. While he was growing up in India, there had always been a mystique surrounding wealthy people and their Swiss bank accounts, so Goel set up an account at Credit Suisse and had the money, ultimately meant for India, sent to Switzerland. Before the money could reach its final destination, though, another disaster hit the Goels. The house they’d bought a year earlier, the one Rajaratnam lent them the money to buy, had become infested with rats, which had eaten through the ground floor. Goel had to fork out a few hundred thousand dollars to get rid of the infestation.

  When Goel was at Wharton, he’d looked up to Rajaratnam, and in the years since, his respect for him had only grown. Rajaratnam had succeeded beyond anyone’s wildest imagination, and he had done so on his terms. Unlike Goel, he worked for no one; he was his own boss. It was a position Goel sometimes wished for himself. In his role at Intel Treasury, Goel was a salaryman, but he knew from working closely with colleagues at Intel Capital, who were paid bonuses and compensated more lavishly, that there were great riches to be reaped in the investing world. In 2008, just as he was coming off a career coup, his disaffection hit a peak.

  Goel had spent the previous year structuring a recapitalization of a company in Intel Capital’s portfolio called SMART Technologies. Goel was charged with helping Intel monetize its $1 million investment in the Calgary company, which developed and made interactive whiteboards. At first, the husband-and-wife team that owned a majority stake in SMART Technologies saw Goel’s efforts as a distraction to their plans to grow the company. But Goel’s persistence paid off. He introduced the company to Apax Partners, a London private equity firm, which made an offer for a minority stake in the company. At Goel’s prodding, Apax even boosted its original offer price by more than 10 percent to $925 million. And then, at the eleventh hour, Goel saved the deal by devising “a brilliant structure” that allowed Intel’s ownership stake in SMART Technologies to remain little changed and kept Apax from having control.

  “Rajiv’s deal instincts were right all along,” gushed his boss in a letter nominating him for an internal Intel award. “Apax was too invested in the deal to walk away.” The deal turned out to be very lucrative for Intel; it led to $120 million of capital gains. Goel won an award and was invited to a black-tie banquet. But for all his work, he received only a small bonus. The security of a guaranteed $400,000 annual salary paled in comparison to the easy street where his friend Rajaratnam lived.

  Goel was feeling underappreciated when one day in late March 2008, he picked up the phone and called Rajaratnam to vent.

  “Get me a job with one of your powerful friends, man,” he began. “I’m tired of this company.”

  Despite his elevated status in the South Asian community, Rajaratnam never balked at introducing Goel to his powerful friends. In November 2006, when Goel was planning a trip to New York City, he reached out to Rajaratnam. Perhaps “we could meet…I am itching to buy an expensive bottle of wine! (SMILEY FACE),” he emailed. Goel knew that Rajaratnam was close to Parag Saxena, one of Gupta’s partners in his private equity venture. Goel had some expertise investing in companies at Intel and thought he might parlay his experience into a job at the fund.

  When Goel came to New York, he met with Rajaratnam’s partners in New Silk Route over drinks in the lobby of the Four Seasons Hotel on Fifty-Seventh Street. Nothing came of the meeting, but Rajaratnam’s gesture was one of the reasons Goel so valued their friendship. Not everyone in Rajaratnam’s place would have made the introduction. Rajaratnam was a real friend; he always put his neck on the line for Goel, even when there didn’t seem to be anything in it for him in return.

  When Goel, pleading for help in finding a job, told Rajaratnam of the Intel award he was getting, Rajaratnam cut to the crux of the matter.

  “Did you get an award or did you get cash?” asked Rajaratnam. He knew how to press all the right buttons and move people around like pawns on his personal chessboard.

  “No, no, they don’t give cash, no,” replied Goel, a little taken aback. “They hold a special banquet for this.”

  “Are you gonna speak?” Rajaratnam then asked.

  “It’s a formal thing,” Goel said, dodging the question. “You gotta wear a tux and everything. It’s like a big affair.”

  When Rajaratnam pressed Goel on what he had done to win the award, Goel portrayed himself as an iconoclast. “You gotta be a hustler and you gotta be a maverick. You gotta say ‘To hell with it’ uh…you know, when your superiors or when your management tells you to do it one way, screw it, I’ll do it the way I want…Basically I’m taking a dig at the management, no?” Goel said, seeking Rajaratnam’s approval. “And I’m saying maverick. I mean, everybody and their mother was opposing the deal…so they’re [sic] thinking is ‘Yeah, this guy will never be able to do it.’”

  Rajaratnam sensed the depth of Goel’s dissatisfaction. At Galleon he was the boss, not the underpaid and overworked employee, but for a moment he traded places and pretended to put himself in Goel’s shoes.

  “You should not have any expectations of financial rewards but a lot of psychic rewards,” Rajaratnam suggested Goel point out in his write-up.

  “Yeah,” Goel chuckled, “lot of back-patting.”

  After the call, like a child running home with a good report card, Goel sent Rajaratnam the nominating letter his manager wrote for the Intel award. In his forwarding message to Rajaratnam, he remarked, “The deal complexity is much higher than depicted but nonetheless makes good reading.”

  Over the
years, as the friendship between the two deepened, their families vacationed together and their daughters bonded. After one holiday the families took to Italy in 2008, the Goels left early to visit London. The Rajaratnams stayed behind, but their daughters missed the Goel girls. “Dad has nobody to pick on so he’s picking on us,” the Rajaratnam girls wrote. “Thanks for inviting and planning a great vacation. We will remember you as we eat another pasta tonight. Have fun in London and see you soon.” As a postscript, the Rajaratnam girls added, “New York rocks and California sucks.” Goel wasn’t sure if he agreed with the assessment, but he was happy that his friendship with Raj had grown to encompass his family.

  Chapter Twenty-Five

  The Richest Maid in Silicon Valley

  It was shortly before 8 a.m. on Tuesday, March 25, 2008, and an irritable Anil Kumar was stuck in a taxi in the middle of Tokyo on his way to work. It had been four years since Kumar had begun leading his double life, McKinsey consultant by day and Rajaratnam informant by night. Neither was easy. He treaded water at McKinsey but was planning a move to New York in the summer for a new job—a sideways step—to boost his career prospects when Ian Davis, McKinsey’s managing director, stepped down in 2009.

  After stopping in Tokyo, Kumar was headed to Singapore and then planned to go to India. As exhausting as his schedule was, there was a more pressing reason for his irritation.

  “This taxi driver doesn’t know where he is going,” he bristled.

  Rajaratnam, hanging on the other end of the phone, some seven thousand miles away and in a different time zone, laughed.

  It was hard to fathom the confusion. McKinsey’s Tokyo office was well known in Japan. It stood tall in a commercial block of the Roppongi section. For the longest time, the office was run by Kenichi Ohmae, a legendary Japanese businessman and aspiring politician. It was a sign of Ohmae’s importance that for a time when he reigned, there was a security guard planted outside his office with a gun sitting on his desk in full view. (McKinsey says that to its knowledge, this is not accurate.) Word was that Ohmae had so many friends—and enemies—in Japan that he required protection even at the office.

  With its buzzing discos and throbbing clubs, Roppongi was a continent away from Kumar’s world. As a senior partner, he spent his life on planes, logging as many as forty thousand miles a month to visit clients. He shuttled so often between New York and Silicon Valley that McKinsey assigned him an office in each place. In addition, he had two home offices, one in Saratoga, California, and the other in his apartment in the Time Warner Center in New York so he could field calls from clients on weekends or catch up on emails after hours.

  Some of his colleagues griped about the grueling travel regimen that accompanied a career in consulting, but Kumar seemed to relish his peripatetic life. He liked to inject the names of cities he was passing through into emails or phone conversations, much like practiced name-droppers slip in mentions of their rich and famous friends. Kumar had a fetish for both. “Cambodia and Angkor Wat were amazing!!” or “I’m here with…Sunil Mittal and Sunil Munjal,” two Indian business tycoons. All it took was a standard query about his well-being, a simple “how are you?” to elicit a reflex-like reply about the city he happened to be in or the company he was keeping. It was as if he thought all the jet-setting conferred upon him a certain gravitas and imbued him with an importance that otherwise was not apparent.

  He had three cell phones, one for each of the continents he worked in, Asia, Europe, and America. Ostensibly the trove of phones was to keep McKinsey’s costs down, but it also served another purpose: it affirmed Kumar’s position in the caste system of the business world. He was no nine-to-fiver, consigned to short-haul trips within the borders of one country. No, Anil Kumar liked to think of himself as a macher, a Yiddish term meaning a “maker,” the kind of person who made things happen. He was a pivotal player in the new global economy, so in demand that his old colleagues in New Delhi would joke that he spent most of his life on a plane or on the phone.

  In recent years, regardless of where he was—Mumbai, Dublin, Tokyo—Kumar had fallen into a predictable pattern. He made it a point to call his new best friend, Rajaratnam. Fortunately for him, Kumar occupied a privileged place in Rajaratnam’s ever-expanding universe of contacts. He was on a list of about ten people whose calls were so important that Rajaratnam told his secretary, Caryn Eisenberg, to disturb him if he was in a meeting or find him if he was not in his office. It was an “honor” bestowed on very few—and it was coming from someone who was an acknowledged master of the universe, not a wannabe.

  By 2008, Raj Rajaratnam was so successful that he made it to the Forbes 400 “Richest People in America” list for the first time. He hung out with hedge fund rock stars like himself, playing in a fantasy football league whose members included Stanley Druckenmiller and Paul Tudor Jones. The price of admission said it all: members had to pony up $100,000 each to play. And the celebrations for winning were over-the-top.

  In February, to mark the victory by Michael Daffy, a Goldman Sachs executive in the league, Rajaratnam, Druckenmiller, and a handful of others took off from the West 30th Street Heliport in helicopters and headed down to Atlantic City for an overnight trip to the Borgata hotel and casino. When they arrived, they were met by limousines that took them to the hotel. There they were joined by Paul Tudor Jones, one of the oldest members of the league. They started the evening with drinks and dinner and ended it with a night of gambling. The next morning, at 6:30, the hard-charging traders left the Borgata for the Atlantic City airport.

  Rajaratnam’s success made him a business celebrity in the South Asian community. He was one of six Asians on the Forbes list. Whenever he dined out, young South Asians gravitated to his table to pay homage and sound him out on a business proposition or hit him up for a job. Rajaratnam was always open and welcoming. He enjoyed the adulation, the verbal stroking that inevitably ensued. Many times, he would hand fawning visitors his business card. Little did they know that Rajaratnam’s world was neatly divided between the people he wanted to know and the people who wanted to know him. He cleverly devised a system to keep the two groups separate. His business card did not list his direct line; only a select group of people had that number. All others were given his secretary Eisenberg’s line. Invariably, the next day when an admirer telephoned, mistaking Rajaratnam’s warmth for something more, Rajaratnam avoided the call. It was his secretary’s job to keep callers like this at bay.

  Kumar sounded excited when he called Rajaratnam that Tuesday morning from Tokyo. In the normal course of business, senior partners at McKinsey are called upon to oversee the work of other consultants. It is part of the rigorous evaluation process that is integral to the fabric of McKinsey. In the midst of supervising a colleague who was doing some confidential work for Fujitsu, Kumar got some information that he was sure Rajaratnam would find as scintillating as he did. China’s biggest computer maker, Lenovo Group, which four years earlier had sent shock waves through the computer industry when it bought IBM’s PC business, was in serious talks with Fujitsu to buy its personal computer business.

  “It’s not a dead certainty yet,” Kumar said. Then, stating what must have seemed like the obvious to a veteran investor like Rajaratnam, he explained why. Getting a Japanese company to sell a business is “like an act of God.”

  “Right,” snapped Rajaratnam. Whenever he was excited about a piece of information, he peppered Kumar with penetrating follow-up questions, but when he was bored with an idea he responded with monosyllabic answers. Even though the two had been conversing for years, Kumar did not always pick up on Rajaratnam’s subtle signals. Sometimes, as was the case that day, Rajaratnam would have to change the subject to get Kumar off the topic and onto a new one. Even then, Kumar was like a dog with a bone. He would stubbornly cling to his tantalizing tip. Minutes later, seemingly out of the blue, he would return to it. Despite the home run on the AMD and ATI deal, Kumar was deeply insecure about his place in Rajaratnam’
s world.

  “I don’t know how to play” the Fujitsu-Lenovo deal, said Rajaratnam. Not sensing Rajaratnam’s disinterest, Kumar had brought up the transaction a second time.

  “So I’ll tell you how to play, it’s very straightforward,” said Kumar, taking an irritatingly didactic tone. He was clearly oblivious to the mounting investing pressures his friend was facing in the spring of 2008. Rajaratnam had just come off one of the most stressful weeks of trading in his life. A week before, Bear Stearns & Co., the fifth-largest investment bank in the United States, had all but collapsed under the weight of a bad bet that two of its hedge funds made on shoddy subprime loans. Bear had stumped up $3 billion the previous summer to rescue the funds, but by March, investors pummeled its stock, betting the company was effectively insolvent. They were right.

  At times like these, it was best to stick to safe, surefire ideas like the tip Kumar had given him about an Indian energy company called Hindustan Oil Exploration Corp. Kumar had learned from a corporate lawyer and friend in India that its shares were set to be bought up in an open tender offer.

  “So that’s a certainty, right?” Rajaratnam asked.

  “Yeah,” replied Kumar.

  “So every day I’ll accumulate a little bit whatever I can, in the market,” Rajaratnam ventured.

  Trading Hindustan Oil was very different from playing Fujitsu, a conglomerate jettisoning a part of its business. With Fujitsu, it was not clear who would come out on top: the Chinese or the Japanese.

  But to the know-it-all Kumar, playing the Fujitsu-Lenovo deal was an obvious trade. Personal computer buyers were tightening their belts on information technology spending amid the slowing economy and were looking for the best deals.

  “Lenovo will be the winner” because Dell and HP will have a tough time matching the lower costs that Lenovo, which makes more of its computers in China, enjoys, Kumar explained. McKinsey was a great example of the trend. In a recent overhaul, it decided to buy all its laptops from low-cost Lenovo. Then, suddenly awakening to a complexity that Rajaratnam spotted straightaway, Kumar conceded: “Now, you know, you’re right, somehow markets may also say ‘God, they’ve got this big bear of a cost structure now, because they’ve got this big fat high cost Japanese company.’”