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

by Anita Raghavan

  Bruce D. Henderson, a onetime Bible salesman and Harvard Business School graduate, founded the Boston Consulting Group in 1963: www.bcg.com.

  It started with just two consultants and in its first month racked up $500 in billings: Ibid.

  By 1973, Boston Consulting had grown to 142 consultants: Ibid.

  And like McKinsey, it had offices in London and Paris: Ibid.

  So-called Baker Scholars such as unsuccessful presidential candidate Mitt Romney: Leonhardt, “Consultant Nation.”

  Harvey Golub, Michael Jordan, and Louis Gerstner Jr. went on to jobs at American Express, Westinghouse, and IBM: John A. Byrne, “The McKinsey Mystique,” BusinessWeek, September 19, 1993.

  USA Today study: The USA Today study is cited by Duff McDonald in “The Answer Men,” New York Magazine, July 26, 2009.

  Gupta being awarded perfect grades but striking out in his first effort to be hired by McKinsey: 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.

  Anita Mattoo thought she would not see Gupta: Letter written by Anita Gupta on behalf of her husband ahead of his sentencing.

  In his wallet, he kept a five-rupee note: Letter written by M. Kumar on behalf of Gupta ahead of his sentencing.

  Anita winning the director’s gold medal at IIT: Sreenivasan, “The Superboss.”

  Rajat’s summer job at the food-processing plant: Interview with Doug Manly, December 23, 2012.

  “If you didn’t have a US citizenship”: 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.

  Bill Clemens’s words to Gupta: Sreenivasan, “The Superboss.”

  “Nobody else is interviewing me”: Gupta’s remarks at Creativity and Personal Mastery class.

  At one point, more than a third of McKinsey’s consultants held a Harvard MBA: McDonald, “The Answer Men.”

  “You guys do great work”: Interview with Anjan Chatterjee, March 13, 2012.

  “That surprises me given your work in my class” and Salmon’s subsequent remarks to Gupta and Daniel: Salmon interview.

  Chapter Nine: “The Tamil Tiger” of Wall Street

  Rajaratnam’s hiring by Chase and his starting salary of $34,000: Anita Raghavan, “Power and Pleasure,” Forbes, October 11, 2010.

  “Wall Street was tough to get into for us”: Suketu Mehta, “The Outsider,” Newsweek, October 23, 2011.

  Rajaratnam’s early years at Chase: Raghavan, “Power and Pleasure.”

  “Give me a Quotron”: Ibid.

  “After a while money is not the motivation”: Lois Peltz, The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns (Hoboken, NJ: John Wiley & Sons, 2001).

  In 1985, Rajaratnam quit Chase for Needham: Raghavan, “Power and Pleasure.”

  “I hire one-legged men”: 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.

  Required to take red-eye flights: Ibid.

  When US semiconductor companies were struggling: Ibid.

  He told them his first name meant “king” in Hindi: Ibid.

  “He would tell about his experience with the Tamil Tigers”: Raghavan, “Power and Pleasure.”

  “When you are presenting a highly technical story”: Interview with Bob Anderson, August 10, 2010.

  “Raj sort of had a South Asian mafia”: Raghavan, “Power and Pleasure.”

  At Needham, he was “pretty much the same guy you see now”: Ibid.

  In 1988, he and Asha Pabla were married: US v. Rajaratnam, Sentencing Memorandum on behalf of Raj Rajaratnam (hereafter Rajaratnam sentencing memo).

  In 1991, George Needham promoted Rajaratnam to president: Guth and Scheck, “The Network.”

  Rajaratnam’s bet that he could handle any spicy sauce: Ibid.

  By the beginning of 1994, Rajaratnam owned 17 percent of Needham: Ibid.

  Needham confronting Rajaratnam about his South Asian hires: Suketu Mehta, “The Outsider,” Newsweek, October 23, 2011.

  In 1992, Rajaratnam started a small hedge fund at Needham: Rajaratnam sentencing memo.

  Between 1993 and 1996, at least five Needham executives: Guth and Scheck, “The Network.”

  “I greatly regret that Raj Rajaratnam”: Ibid.

  How do I get these guys to call me?: Raghavan, “Power and Pleasure.”

  Chapter Ten: Up or Out at McKinsey

  Gupta’s impressions of his early years at McKinsey: 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.

  “I was sitting there and wondering”: Ibid. McKinsey says Gupta became an engagement manager less than three years after joining the firm.

  “Rajat did not seem overwhelmed at all” and subsequent remarks by Wyss: Interview with Karl Wyss, October 31, 2012.

  Bob Waterman’s impressions of the young Gupta: Interview with Robert Waterman Jr., May 20, 2011.

  Skilling’s observations of McKinsey in the 1970s: Email from Jeffrey Skilling, March 4, 2012.

  “The new markets were blocked by the new guys”: Email from Jeffrey Skilling, March 7, 2012.

  Gupta’s encounter with Bud Miles and the advice he received from a partner: Gupta’s remarks at Creativity and Personal Mastery class.

  An electrical engineer, Gluck arrived in 1967 after a stint at Bell Labs, where he was program manager for the Spartan missile: Walter Kiechel III, The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Boston: Harvard Business Press, 2010).

  “The whole place moved”: Interview with Anjan Chatterjee, March 13, 2012.

  Henzler made principal in four and a half years: Herbert Henzler, Immer am Limit (Berlin: Econ, 2011), 89.

  Gupta being late in making principal: Gupta’s remarks at Creativity and Personal Mastery class.

  He bought $2 shirts at Filene’s Basement and sent money for his siblings to buy a house: Letter written by Jayashree Chowdhury on behalf of her brother ahead of his sentencing.

  “I spent my first night”: Chatterjee interview.

  Gupta’s expectation that his wife would give him the cover to turn down Scandinavia and her surprising reaction: Gupta’s remarks at Creativity and Personal Mastery class.

  Anita’s job at Bell Labs: Ibid.

  Purchase of house for $75,000 in Middletown, NJ: Monmouth County Clerk’s Office.

  Naming his daughter after the Tagore epic: Letter written by Gupta’s IIT friend Ashok K. Manchanda on his behalf before Gupta’s sentencing.

  Gupta’s reaction to McKinsey’s offer for him to visit Scandinavia, his first house-hunting trip there, and his colleagues’ buying his house there: Gupta’s remarks at Creativity and Personal Mastery class.

  Scandinavia was “a very homogeneous environment”: Ibid.

  The Scandinavian office manager’s drinking problem and Gupta’s reflections on it: Ibid.; the episode is also confirmed and elaborated upon by other McKinsey partners and is described in George David Smith, John T. Seaman Jr., and Morgen Witzel, A History of the Firm (privately published by McKinsey in 2010).

  “Office managers had a lot of power”: Chatterjee interview.

  Gupta was one of the youngest office managers: 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.

  Christian Caspar’s recollection of Gupta: John A. Byrne, “A ‘Global Citizen’ for a Global McKinsey,” BusinessWeek, April 10, 1994.

  “What a change”: Skilling email, March 4, 2012.

  Skilling’s exp
erience with Gupta in Scandinavia: Email from Jeffrey Skilling, March 6, 2012.

  Grown the practice in Scandinavia from 15 to 125: Gupta’s remarks at Creativity and Personal Mastery class.

  “To this day our competitors find it hard to compete”: R. Sridharan, “Change Agent,” Business Today, August 12, 2007.

  Gupta’s approach in Scandinavia “probably foreshadowed McKinsey’s phenomenal worldwide success”: Skilling email, March 4, 2012.

  The story about Marvin Bower as Santa Claus: Smith, Seaman, and Witzel, A History of the Firm, 118.

  Chapter Eleven: The Camera Never Lies

  In the spring of 1998 Intel installed a hidden video camera: US v. Roomy Khan CR-01-20029-JW, Government Sentencing Memorandum and Motion for Downward Departure, July 1, 2002.

  By design, the fax feeder required that documents be laid faceup on the machine: Interview with former FBI agent Russell Atkinson, May 17, 2012, and September 14, 2012.

  Intel also installed a camera in a fabric divider panel: Ibid.

  The time clock on the camera was synchronized with the clock on the fax: Ibid.

  After complaints two years earlier from investors: US v. Rajaratnam, Franks hearing, Government Exhibit 2, Electronic Communication dated April 29, 1998, from FBI San Francisco to FBI headquarters.

  Preliminary investigations of its phone records: Ibid.

  “If you sell this information you can get real money for it”: Justin Scheck, Robert A. Guth, and Ben Charny, “Rajaratnam Investigated Decade Ago—Probe Adds Another Missed Opportunity by Securities Regulators and Government Prosecutors,” Wall Street Journal, December 4, 2009.

  Investors had been complaining to Intel since 1996 of their suspicions that information was leaking to Rajaratnam’s newsletter: US v. Rajaratnam, Franks hearing, Government Exhibit 2.

  Just a year earlier, Rajaratnam had struck out on his own: US v. Rajaratnam, Sentencing Memorandum on behalf of Raj Rajaratnam (hereafter Rajaratnam sentencing memo).

  “I was spending two or three hours a day as a shrink”: US v. Rajaratnam, Franks hearing, Government Exhibit 169, Raj Rajaratnam, the Galleon Group, interview with Antoine Bernheim, HedgeFund News publisher, April 1997.

  In January, he and three lieutenants from Needham: Lois Peltz, The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns (Hoboken, NJ: John Wiley & Sons, 2001), says that Gary Rosenbach, Krishen Sud, and Ari Arjavalingam joined Rajaratnam at Galleon.

  Within a decade after he set up Galleon, assets at hedge funds would swell to $1.5 trillion: Hedge Fund Research Inc.

  Steven Cohen, founder of SAC Capital, ranks fortieth on the Forbes 400 list and is a Wharton grad: See http://www.forbes.com/profile/steve-cohen/.

  Cohen grew SAC from $25 million in assets: Ibid.

  Cohen’s estate: First described by Susan Pulliam in “Private Money: The New Financial Order—The Hedge-Fund King Is Getting Nervous—Inside Billionaire Steven Cohen’s Hidden World of Massive Trading and Lavish Art; Is the Party Over?—At Home with Van Gogh, Gauguin and a Skating Rink,” Wall Street Journal, September 16, 2006. Bryan Burroughs, “What’s Eating Steve Cohen?” Vanity Fair, July 2010.

  Office on Lexington and Fifty-Seventh Street, about a block from his old firm: 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.

  Managing about $350 million that he cobbled together from close friends and family: Peltz, New Investment Superstars.

  His firm was called Galleon Group after the large ships that traded in spices and ivory with Sri Lanka, his birthplace, known long ago as the Isle of Serendip: Suketu Mehta, “The Outsider,” Newsweek, October 23, 2011.

  It traded on Rajaratnam’s expertise, technology stocks: Peltz, New Investment Superstars.

  On the walls of his new office, he hung: Ibid.

  Investors were Ken Levy, Neil Bonke, and Kris Chellam: Raj Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, June 7, 2007; author interviews.

  He and his wife lived with their son: US v. Rajaratnam, Rajaratnam sentencing memo.

  At one time Marilyn Monroe lived at the address: “Playwright wins Marilyn,” Long Beach Independent, June 22, 1956; Donald Spoto, Marilyn Monroe: The Biography (New York: HarperCollins, 1993).

  And today it counts among its famous residents Mario Cuomo: Christine Haughney, “The Appraisal; From Queens Roots, Cuomo Clan Branched Out,” New York Times, May 3, 2010.

  In 2000, when he moved to combine the two apartments and have two kitchens, he cited “adherence to Jewish traditions”: Anita Raghavan, “Power and Pleasure,” Forbes, October 11, 2010.

  So he stacked its board of advisers with impressive names including hedge fund titan Stanley Druckenmiller and Paine Webber chief Don Marron: Peltz, New Investment Superstars, 204.

  He generally walked to work from his apartment: Ibid., 203.

  Galleon’s 8:30 a.m. meeting and the fine for latecomers: Robert A. Guth and Justin Scheck, “The Network: The Rise of Raj: The Man Who Wired Silicon Valley,” Wall Street Journal, first reported on the $25 fine.

  Rajaratnam’s focus on bottoms-up research carried out by a team of analysts visiting more than three hundred companies: Peltz, New Investment Superstars, 201.

  Rajaratnam’s requirement that his analysts’ travel expenses would be reimbursed only if they sent an explanation of what they learned: Ibid., 202.

  Eight of ten analysts were engineers by training, and Rajaratnam liked to boast his analysts weren’t “blindsided by the marketing hype”: Ibid.

  He said it was easier to teach an engineer to pick stocks: Rajaratnam sentencing memo.

  On Thursdays, employees could sign up for massages: Guth and Scheck, “The Network: The Rise of Raj: The Man who Wired Silicon Valley.”

  The modeling of a black Spandex outfit: A version of this story appeared in Gregory Zuckerman and Robert A. Guth, “Rajaratnam: Relentless Pursuit of Data,” Wall Street Journal, October 24, 2009.

  A budget for travel had to be approved before the trip: US v. Rajaratnam, Testimony of Adam Smith, March 29, 2011.

  James Bagley met Rajaratnam in the early 1990s: A portion of the August 5, 2010, interview with Bagley first appeared in Raghavan, “Power and Pleasure.”

  Khan’s roots in Delhi, her educational background, her meeting Rajaratnam, and their early dealings: US v. Doug Whitman, 12 CR.125 (JSR), Testimony of Roomy Khan, August 6, 2012. US v. Rajaratnam and Danielle Chiesi, S1 09 Cr. 1184 (RJH), Defendant Raj Rajaratnam’s Memorandum of Law in Support of His Motion to Suppress Evidence Derived from Wiretap Interceptions of his Cellular Telephone (hereafter cited as US v. Rajaratnam and Chiesi, Rajaratnam Motion to Suppress Wiretaps), Exhibits A.8, A.9, and A.17, FBI 302 Memorandums of Interviews with Roomy Khan, April 27 and June 20, 2001, and December 17, 2007.

  Four months after Galleon opened, it was up 3 percent: US v. Rajaratnam, Franks hearing, Government Exhibit 169, Rajaratnam interview with Bernheim.

  “Ask around the street about the market’s hottest tech investor”: Eric J. Savitz, “Tech Investors Are Acting Irrationally, but a Few Guys Do Have Their Heads on Straight,” Barron’s, November 3, 1997.

  The rocky waters Galleon hit in the fall of 1997 and the loss in October: Peltz, New Investment Superstars, 207.

  Rajaratnam calling Khan for the first time for inside information on Intel and his subsequent dealings with her: Described in US v. Rajaratnam and Danielle Chiesi, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.8, FBI 302 Memorandum of Interview with Roomy Khan, April 27, 2001.

  He even offered to give her some extra money if she remained: US v. Rajaratnam, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.9, FBI 302 Memorandum of Interview with Roomy Khan, June 20, 2001.

  On March 6, 1998, Khan faxed a number of sheets and the information contained in the “book
to billing” reports: US v. Roomy Khan, CR-01-20029-JW, Government Sentencing Memorandum and Motion for Downward Departure, June 25, 2002.

  On March 24, Khan faxed several pages of handwritten notes with Intel’s average selling price: Ibid.

  Chapter Twelve: The Corner Office

  Rajat Gupta had his pick of the next McKinsey posting: 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.

  His colleague and his wife recommended a home for Gupta: Letter written on behalf of Gupta before his sentencing by a former McKinsey colleague in Chicago, John Patience.

  The way McKinsey views internal management: Gupta’s remarks at Creativity and Personal Mastery class, which are confirmed by other McKinsey partners.

  Not unlike his father, who could deliver sold-out tickets: In an interview on October 17, 2011, Sukharanjan Dasgupta, a journalist in Calcutta, recalled about fifty years ago when he and some friends had difficulty getting train tickets home, they were told to approach Ashwini Gupta, who procured tickets.

  His philosophy on success: Gupta’s remarks at Creativity and Personal Mastery class.

  The lesson he learned from attending Nehru’s press conferences: Letter written on Gupta’s behalf by family friend Srilata Gangulee ahead of his sentencing.

  “Think of political patronage”: Email from Jeffrey Skilling, March 22, 2012.

  Gupta came to learn that Gluck planned to name someone else as Chicago office manager: Gupta’s remarks at Creativity and Personal Mastery class; author interviews.

  Gupta’s ruminations about the Chicago manager job: Gupta’s remarks at Creativity and Personal Mastery class.

  Anita Gupta’s memories of her tired husband on the couch with a baby: Letter written by Anita Gupta on behalf of her husband ahead of his sentencing.

  Gupta tutoring Geetanjali in math on Saturday mornings: Letter written on Gupta’s behalf by his eldest daughter, Geetanjali, ahead of his sentencing.