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

by Anita Raghavan

  Gupta wanted to be with his daughters, “not merely around us”: Letter written on Gupta’s behalf by his daughter Aditi ahead of his sentencing.

  “Moral support” was a Gupta buzzword and “If we resisted”: Letter written on Gupta’s behalf by his daughter Megha ahead of his sentencing.

  Thanksgiving at the Guptas: Recounted in a number of letters written on Gupta’s behalf ahead of his sentencing.

  Amid a game of Pictionary, the quiet Gupta could outshout anyone: Letter written by Mala Gupta ahead of her brother-in-law’s sentencing.

  Gupta’s mastery of yo-yoing: Letter written by IIT Delhi friend Veena B. Mendiratta on Gupta’s behalf ahead of his sentencing.

  The gifts the Guptas brought on their visits to India: Detailed in letters written on Gupta’s behalf by Anita Gupta’s brother Arjun Mattoo and Gupta’s nephew Arvind Mattoo before his sentencing.

  The role Gupta played after his father-in-law’s death: Described by Anita Gupta’s brother, Arvind, and her sister, Aninda, in letters they wrote on Gupta’s behalf before his sentencing.

  Gupta’s exchange with Gluck over the Chicago job: Gupta’s remarks at Creativity and Personal Mastery class.

  Gluck’s background: Walter Kiechel III, The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Boston: Harvard Business Press, 2010).

  Gupta’s view that Gluck gave him the Chicago job “against his wishes”: Gupta’s remarks at Creativity and Personal Mastery class. Gluck passing over Ashley is also discussed in George David Smith, John T. Seaman Jr., and Morgen Witzel, A History of the Firm (privately published by McKinsey in 2010), 371.

  Gupta was on the slate in 1988 and his rivals were a decade older than him: Gupta’s remarks at Creativity and Personal Mastery class.

  By the time Gluck was set to retire, McKinsey’s revenue had grown to $1.2 billion, but 60 percent of the revenue came from overseas: John A. Byrne, “The McKinsey Mystique,” BusinessWeek, September 19, 1993.

  “Many insiders believe McKinsey may elect the first non-American”: Ibid.

  Lukas Muehlemann left to take the CEO job at Swiss Re: Peter Gumbel, “Swiss Reinsurance Ousts A.W. Saxer as Chief Executive,” Wall Street Journal, April 29, 1994.

  The growth of McKinsey’s financial institutions practice: Smith, Seaman, and Witzel, A History of the Firm, 303.

  “It strained the fabric of the place”: John Huey, “How McKinsey Does It: The World’s Most Powerful Consulting Firm Commands Unrivaled Respect—and Prices—but Is Being Buffeted by a Host of New Challenges,” Fortune, November 1, 1993.

  “By the end of the 80s, there was a growing group within the firm that felt the pendulum swung too far: Email from Jeffrey Skilling, March 5, 2012.

  “Did I ever find a glass ceiling?”: Gupta’s remarks at Creativity and Personal Mastery class.

  “He got the job because two stronger personalities were competing heavily”: Interview with Bala Balachandran, May 17, 2011.

  “The candidate for Managing Director has to reflect the aspirations of the firm”: Emails from Jeffrey Skilling, March 4 and 5, 2012.

  Chapter Thirteen: Raj’s Edge

  Khan quit after receiving a poor performance review: US v. Roomy Khan, CR-01-20029-JW, Government Sentencing Memorandum and Motion for Downward Departure, June 25, 2002, says Khan was fired by Intel. But FBI agent Russell Atkinson, who was investigating the case, says she left on her own after she was given a poor review. His account is confirmed by others.

  In 1999, his flagship technology fund posted a return of 96.3 percent: Lois Peltz, The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns (Hoboken, NJ: John Wiley & Sons, 2001), 208.

  In June 1999, he started the Galleon New Media fund: Ibid., 205.

  Assets under management swelled from $1 billion in 1998 to $5 billion: Ibid., 199.

  Rajaratnam opened an office in Santa Clara with an unlisted number: 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 Rajaratnam Motion to Suppress Wiretaps), May 7, 2010, Exhibit A.8, FBI 302 Memorandum of Interview with Roomy Khan, April 27, 2001.

  Rajaratnam hired Khan at a starting salary of $120,000: US v. Rajaratnam, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.9, FBI 302 Memorandum of Interview with Roomy Khan, June 20, 2001.

  Rajaratnam told Khan to find contacts inside companies so they could give her ‘the edge’: US v. Rajaratnam, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.8, FBI interview of Khan, April 27, 2001.

  The circumstances of Khan’s departure from Galleon: US v. Whitman, 12 CR.125 (JSR), Roomy Khan testimony, August 6, 2012; US v. Rajaratnam, Rajaratnam Motion to Suppress Wiretaps says in footnote 3 Khan was “terminated” in March 1999 from Galleon for trading in her personal account.

  On April 15, 1999, two FBI agents showed up at Khan’s house: Ibid.; US v. Rajaratnam, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.7, FBI 302 Memorandum of Interviews with Roomy Khan, April 15, 1999. Later Khan would tell investigators she made no money giving Rajaratnam insider tips.

  Chapter Fourteen: Building Offshore-istan

  Kumar had been tilling over the area of remote business services: Jason Busch, in “Godfather of KPO and McKinsey director Anil Kumar Arrested,” SpendMatters.com, October 16, 2009, cites Rudy Hirschheim, who edited Information Systems Outsourcing: Enduring Themes, Global Challenges and Process Opportunities (Berlin: Springer Verlag), as saying “The international consulting firm McKinsey initiated a project in 1995 led by Anil Kumar to exploit reductions in global telecommunications rates that would create opportunities for remote business services…this led McKinsey to establish a knowledge center in Delhi.” Hirschheim’s observations of Kumar’s work on remote business services are confirmed by other sources.

  Kumar joining McKinsey in 1986 and moving to San Jose in 1988: US v. Anil Kumar, 10-cr-13 (DC), Sentencing Memorandum submitted on behalf of Anil Kumar (hereafter Kumar sentencing memo), July 18, 2012.

  Kumar literally pounding the pavement to get clients and the growth of the office: Ibid.

  In 1992, he made principal: Ibid.

  Puri and Gluck’s trip to India and the creation of the India office: Based on author interviews and described in George David Smith, John T. Seaman Jr., and Morgen Witzel, A History of the Firm (privately published by McKinsey in 2010), 349.

  No one in India knew what a management consultant actually was: Ibid.

  Puri’s enlisting of Vaish and McKinsey’s work for Hindustan Motors: Based on author interviews; Smith, Seaman, and Witzel, A History of the Firm, 350–51; IBS Center for Management Research, “Hindustan Motors’ Struggle for Survival,” case study, 2002. See http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy1/Business%20Strategy%20Hindustan%20Motors%20Struggle%20for%20Survival.htm.

  “We don’t know what will happen”: Smith, Seaman, and Witzel, A History of the Firm, 350.

  The phlegmatic Gupta on Madh Island: Interview with former head of McKinsey Knowledge Center Amit Bhatia, May 30, 2011.

  One of its partners installed the switchboard and one computer was shared between the Delhi and Mumbai offices: Smith, Seaman, and Witzel, A History of the Firm, 352.

  One week of a McKinsey engagement equaled the salary of some Indian companies’ CEOs: US v. Anil Kumar, Kumar sentencing memo.

  In June 1991, India’s reserves plummeted to $1.2 billion: “India’s Election: Who, Me?,” Economist, May 20, 2004.

  The screening of Nine Atop Everest and the boys’ reaction to it: Interview with Shomit Mitter, March 9, 2011.

  “To go mountain climbing with these men” and subsequent remarks by Mitter: Ibid.

  “If you were school captain or house captain”: Interview with Dhruv Khanna, January 20, 2011.

  “He came first in the long jump”: Interview with Arjun Mahey,
October 20, 2011.

  “For the next year, he walked around”: Dhruv Khanna interview.

  Kumar’s placement in the top 0.1 percent in the IIT entrance exam and his graduating third in his class: US v. Kumar, Kumar sentencing memo.

  Winning the De Beers scholarship and accepting it after IIT Bombay’s dean persuaded him to: Ibid.

  Completing Imperial College’s two-year program in ten months: Ibid.

  Every weekend, he would make the trek: Ibid.

  He also knew Kumar was a controversial consultant: US v. Gupta, McKinsey consultant Mark “Kito’’ de Boer in a letter written on Gupta’s behalf before his sentencing says, “My relationship with Rajat is made more complex…because of a professional conflict I had with Anil Kumar, which forced Rajat to take sides in favor of Anil.” The author has learned that this conflict related to Anil Kumar’s poaching of a client from a colleague.

  Bhatia’s hiring and the creation of the McKinsey Knowledge Center: Based on an interview with Amit Bhatia, February 2, 2011, and confirmed by other interviews.

  The McKinsey India team estimated $1 trillion of work could move to lower-cost locations: McKinsey said, “This does not seem accurate”; however, individuals on the McKinsey India team say the projection is correct.

  Vinit Khanna’s personal history and interaction with Kumar: Interview with Vinit Khanna, July 13, 2010.

  In 2012, Khanna ran into Kumar: Interview with Vinit Khanna, February 22, 2012.

  Chapter Fifteen: Partying and Polycom

  Now he and his family were headed to Château Grimaldi: US v. Rajaratnam, Testimony of Rajiv Goel, March 23, 2011; US v. Rajaratnam, Government Exhibit 1078, Email from Goel to Rajaratnam, May 22, 2007.

  The trip to Kenya: Anita Raghavan, “Power and Pleasure,” Forbes, October 11, 2010.

  The pot-smoking incident: Ibid.

  Galleon turned over 4 million documents: US v. Rajaratnam, Franks hearing, Testimony of Lindi Beaudreault, October 4, 2010.

  The two investor lists: US v. Rajaratnam, Franks hearing, Testimony of Andrew Michaelson, October 5, 2010.

  When Michaelson asked Rajaratnam to identify investors who were consultants to public companies: Raj Rajaratnam testimony before the Securities and Exchange Commission in the Matter of Sedna Capital Management, June 7, 2007.

  Jason Friedman joining the investigation in the summer of 2007: US v. Rajaratnam, Franks hearing, Michaelson testimony, October 5, 2010.

  The call from Roomy Khan shortly before 4 p.m. on July 2: US v. Whitman, Testimony of Roomy Khan, August 6, 2012.

  Khan started a consulting firm, Digital Age Capital: Ibid.

  In 2000, Khan made $40 million trading Internet stocks: Ibid.

  Circumstances of Khan’s first meeting with Bhalla and dinner at P.F. Chang’s: Ibid.

  “Thanks for the tips on stocks”: Email from Sunil Bhalla to Khan, August 22, 2002.

  Bhalla gave Khan authority over a $50,000 account he held at Lehman: US v. Whitman, Khan testimony, August 7, 2012.

  Bhalla wanted to grow his capital: US v. Rajaratnam, Government Exhibit 1472-a, Sunil Bhalla’s account-opening form, October 1, 2003.

  Khan doubled his money to $100,000: US v. Whitman, Khan testimony, August 7, 2012.

  “Thanks for doing so well”: Email from Bhalla to Khan, November 8, 2003.

  In 2005, she lost $5 million of her money and all of Bhalla’s: US v. Rajaratnam, Khan testimony, August 7, 2012.

  “We are friends”: Email from Bhalla to Khan, March 23, 2005.

  During the 1990s, Sakhawat Khan was granted thirty patents: Ashlee Vance, “The Khans’ Path in Silicon Valley,” NYTimes.com, October 22, 2009.

  When Agate was acquired for $7 million: Ibid.

  In 2000, the Khans paid $10.5 million for a house in Atherton: Assessment record for San Mateo County indicates the Khans bought 168 Isabella Avenue for $10.5 million in 2000; Ashlee Vance and Michael J. de la Merced with contributors Zachery Kouwe and Dan Zehr, “Witness in Galleon Case Is Said to Have History of Passing Secrets,” New York Times, October 24, 2009.

  The description of the house: http://www.zillow.com/homedetails/168-Isabella-Ave-Atherton-CA-94027/15593703_zpid/.

  Vilma Serralta’s story of working for the Khans: Described by Tyche Hendricks, “The Nanny Strikes Back,” San Francisco Chronicle, March 14, 2008.

  The real estate sale that fell through: Vance and Merced with Kouwe and Zehr, “Witness in Galleon Case Is Said to Have a History of Passing Secrets”; Ben Charney, “Galleon Witness Had Long String of Financial Difficulties,” Dow Jones Newswires, November 12, 2009; Paul Lewis, “Professor, Scientist, Art Collector, Crook: Jail for Conman with Millionaire Lifestyle,” Guardian, January 21, 2006.

  In 2005, Deutsche Bank sued Khan: Michael J. de la Merced, Zachery Kouwe, and Alex Berenson, “Financial Woes Plague Galleon Informant,” New York Times, October, 21, 2009.

  In April 2001, Khan pleaded guilty to wire fraud and the maximum penalties for the crime: US v. Roomy Khan, plea agreement, April 3, 2001.

  A year later, she was given probation: US v. Rajaratnam and Danielle Chiesi, 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 US v. Rajaratnam and Chiesi, Rajaratnam Motion to Suppress Wiretaps), Exhibit A.6, Roomy Khan Final Judgment and Conditions of Probation, July 1, 2002.

  Khan deserved a lighter sentence because she “has provided the United States with substantial assistance”: US v. Roomy Khan, CR-01-20029-JW, Government Sentencing Memorandum and Motion for Downward Departure, June 25, 2002.

  In mid-2005, she decided to reach out to Rajaratnam: US v. Rajaratnam and Chiesi, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.16 and A.17, FBI 302 Memorandums of Interviews with Roomy Khan (hereafter FBI Roomy Khan interviews), November 28 and December 17, 2007.

  “You are too wealthy to work for me” and the conversation between Rajaratnam and Khan: Ibid.

  Rajaratnam asked Khan what companies she had an “edge” on, and Khan said Polycom: Ibid.

  Khan meeting Rajaratnam in December 2005 in California and her efforts to get a job with him: Ibid.

  Khan invited Bhalla and his wife for a holiday dinner: US v. Whitman, Khan testimony, August 7, 2012.

  Her meeting with Bhalla in early January 2006: Ibid.

  Khan’s instant message to Rajaratnam on January 12, 2006: US v. Rajaratnam, Franks hearing, Government Exhibit 32, Chronology of trading and communication in Polycom by Khan, Rajaratnam, and others (hereafter Polycom chronology).

  “Buy 60 PLCM”: Ibid.

  Two days after Khan bought 3,000 Polycom call options: US v. Rajaratnam, Government Exhibit 66, Roomy Khan Trading in Polycom Securities in January 2006.

  At 10:36 a.m., Rajaratnam’s Technology fund acquired 60,000 shares of Polycom: US v. Rajaratnam, Government Exhibit 65, Galleon Tech Trading in Polycom Stock (PLCM) from January 10 to January 25, 2006.

  On Saturday, January 21, Rajaratnam called his brother and two days later Rengan started to acquire Polycom: US v. Rajaratnam, Franks hearing, Polycom chronology.

  Polycom released its fourth-quarter 2005 earnings: Government Exhibit 1431, Press release from Polycom of Fourth Quarter Earnings, January 25, 2006.

  “hey…tks for plcm idea”: US v. Rajaratnam, Franks hearing, Polycom chronology.

  Bhalla asking Khan to sell Polycom stock and put some winnings in his Lehman account: US v. Rajaratnam, Khan testimony, August 7, 2012.

  Khan’s tip on Polycom netted Galleon’s Technology fund $482,960 in gains: US v. Rajaratnam, Government Exhibit 67, a calculation by the government of Galleon Tech profits from trading in Polycom stock (PLCM) in January 2006.

  Rajaratnam saying he needed to confer with his head trader before giving her a job: US v. Rajaratnam and Chiesi, Rajaratnam Motion to Suppress Wiretaps, Exhibit A.17, FBI Roomy Khan interview.

  Khan tells Rajaratnam of Blackstone takeover of Hilton:
US v. Whitman, Khan testimony, August 7, 2012.

  Khan placed a trade to buy 550 call options: US v. Rajaratnam, Government Exhibit 49, Roomy Khan Trading in Hilton Securities on July 2 and 3, 2007.

  Galleon’s trade on Hilton and the allocation of 400,000 shares to the Technology fund: US v. Rajaratnam, Government Exhibit 50, Galleon Technology fund trading in Hilton Stock (HLT) on July 3, 2007.

  Blackstone’s stock rose 6.4 percent, to $36.05: Interactive Data via FactSet Research Systems.

  Blackstone said it would pay $47.50 a share for Hilton: US v. Rajaratnam, Government Exhibit 1486, Press release from Hilton Hotels of takeover by Blackstone.

  Rajaratnam netted a profit of almost $4.1 million: US v. Rajaratnam, Government Exhibit 55, a calculation by the government of Galleon Technology fund’s profit from trading in Hilton stock in July 2007.

  A purchase of 7,500 shares was placed in Goel’s Schwab account: US v. Rajaratnam, Government Exhibit 1276, Rajiv and Alka Goel’s Charles Schwab account statement detailing purchase of 7,500 shares of Hilton on July 3, 2007.

  Rajaratnam mentioned making a boatload on Hilton: US v. Rajaratnam, Testimony of Rajiv Goel, March 29, 2011.

  7,470,686 Hilton shares changed hands, more than twice the average daily trading volume: Interactive Data via FactSet Research Systems.

  Chapter Sixteen: Playing for Team USA

  “Isn’t this the woman you were talking about?”: First reported in George Packer, “A Dirty Business: New York City’s Top Prosecutor Takes on Wall Street Crime,” New Yorker, June 27, 2011.

  Michaelson scouring the blue sheets for Kumar’s name and receiving three boxes of documents from Texas: US v. Rajaratnam, Franks hearing, Testimony of Andrew Michaelson, October 5, 2010.

  Israel Friedman’s involvement in the case: Ibid.

  “Blackstone may have tipped Galleon”: US v. Rajaratnam, Franks hearing, Michaelson Exhibit 73, FBI memo, July 11, 2007.

  The instant-message exchange between rajatgalleon and roomy81 and the importance of it in the Galleon investigation: US v. Rajaratnam, Franks hearing, Government Exhibit 24, Email from Andrew Michaelson on July 10, 2007, containing instant-message exchanges between Rajaratnam and Khan; first reported by Susan Pulliam, “The Network: The Feds Close In: Fund Chief Snared by Taps, Turncoats—Prosecutors Stalk Galleon’s Rajaratnam After Finding a Revelatory Text Message,” Wall Street Journal, December 30, 2011; Packer, “A Dirty Business.”