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Tuesday, August 20, 2013

The Fall of a Billionaire Buccaneer


BOOK REVIEW

Title: The Billionaire’s Apprentice- The Rise Of The Indian-American Elite And The Fall Of The Galleon Hedge Fund
Author: Anita Raghavan
Publisher: Hachette India, 2013
Price: Rs 499/-

The Fall Of  A Billionaire Buccaneer of Wall Street & South Asia’s Most Successful International Consultant

This is the story of a double-billed tragedy for the South Asian-American elite.  Hedge Fund mogul Raj Rajaratnam is already in jail for 11 years, while former McKinsey consultant an d extant Board  Warrior Rajat Gupta is busy filing expensive appeals against his conviction and jail sentence.

But, it is the wire- taps on their phone conversations, authorised, and accepted by the US authorities and judiciary, that brought both down. This is the first time such wire taps have been used in insider trading  investigations and cases. Therefore, this story can be viewed as part irony, part miscalculation. But it convicted these highly intelligent and accomplished corporate players who made good in one of the most competitive environments in the world.

They, Rajaratnam and Gupta, the admired, respected, and savvy big fish, thought the phone conversations were inadmissible. This became their Achilles Heel. They thought wire-taps on their phone conversations would not even be authorised in any attempt to investigate them for insider trading. It had never been allowed before, and that may be why they were blind-sided.

The lesser players, the ‘inside’ informants on which the Galleon Hedge Fund’s spectacular performance depended, along with its sister funds and associates, ran into some 40 people indicted eventually. Of these, 23 pleaded guilty, and some of them turned ‘approver’ at the civil trial. Many of these people, were also largely, though by no means exclusively, from South Asia.

Anita Raghavan, the author of this terrific book, is also a distinguished product of the diaspora, born in Malaysia, graduate of the University of Pennsylvania, 18 years covering business at the Wall Street Journal, awarded several times for her work, London bureau Chief of Forbes, contributor to the New York Times and so on.

Raghavan has written a fascinating book here, painstakingly researched, engagingly written, it is that rare thing, a page- turner of a business shenanigans book, replete with the drama of downfall, not of ordinary people, but a couple of the best and the brightest,  unaware perhaps of their dangerous flaws.

The obvious motive for the goings on described would be greed and corruption, but one is left wondering after reading through the book. Is this story about money or daring, about power or insecurity, about human frailty or cynicism?

None of the dramatis personae, living large on the American Dream, seem particularly venal. And their biggest crime seems to be in getting caught for conducting their ‘intelligence gathering’ in a sloppy manner, doing little to cover their tracks or disguise their financial gains.  

The FBI, the SEC, The US Attorney’s Office, oft accused of ineffectiveness when it came to rampant insider trading, in the tempestuous and heady bull market of the Clinton years going into the George W Bush ones; clearly needed a big kill to salvage their reputations.

Never mind that the whole of Wall Street collapsed in 2008 because of dodgy decisions and questionable financial instruments ruthlessly leveraged by the largest investment banks in the world!

These careless unfortunates, subject of this book, immigrants, made perhaps too good too fast for some observers, provided the prosecutors a face- saver and target.

Not only that, various Indian immigrants/ethnic South Asians amongst the prosecutors were out to make their reputations safely, by taking down a couple of their own.

As the 44 year old Preetinder Bharara, an ethnic Sikh, US Attorney for Manhattan South, said, somewhat loftily : “Disturbingly, many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged and wealthy insiders in modern finance. But for them material non-public information is akin to a performance-enhancing drug”.  

But then, says author Anita Raghavan, Bharara wants to make it to the US Supreme Court as a Judge one day. Prosecuting the  US v. Rajaratnam could well be regarded as a ‘career-defining case’. It certainly got Bharara into the papers.

On the other hand, the brouhaha over this case may not be justified. After all, “Some legal scholars contend that it is a victimless crime,” writes Raghavan, and also, “the government alleged that Rajaratnam pocketed as much as $75 million from his illegal trades. Compared to Rajaratnam’s net worth of $ 1.3 billion at one time, the sum pales”.  

Raj Rajaratnam came from privilege in Sri Lanka, had impeccable educational qualifications from Wharton and ran a multi-billion dollar set of Hedge Funds through the Wall Street meltdown of 2008.   

But, Rajaratnam was by no means the biggest inside trader on Wall Street. He was just one the US authorities made an example of, thanks to the provability of the case against him. Contemplate this brilliant, if boorish ‘Tamil Tiger’, and his smooth Bengali orphan- made- good accomplice; products of Wharton and Harvard respectively, for a long moment.  Did they really get what they deserved?

(807 words)
August 20th, 2013

Gautam Mukherjee

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