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January 31 - February 12, 2022
He pushed a firm initiative called “100 percent cubed” that promised to make McKinsey more client-centric by delivering 100 percent of the firm, 100 percent of the time, to 100 percent of its clients.
The first three decades of Gupta’s life in the United States had been marked by nonstop striving—making the top grade at HBS, getting a job at McKinsey and climbing its ranks, and then running a worldwide consulting juggernaut so it was operating at peak performance.
As exhilarating as growth was, it was also wearing. During the last few years of his second term, he was under tremendous pressure from partners to take the firm public, just like Goldman Sachs had done, or to seed a venture capital fund like rival Bain had done.
In the world of semiconductors, the rivalry between AMD and Intel is legendary. AMD was the David to the Goliath Intel.
During most of their historic rivalry, AMD was the long-suffering laggard, but in 2003, AMD executives champed at the bit, excited because the company had devised a new computer chip, Opteron. It was their lethal weapon in the fight to win market share away from Intel. Within AMD, secrecy naturally surrounded the new product. Thanks to Opteron, AMD was on the cusp of winning a big order from one of Intel’s most long-term and loyal customers, Hewlett-Packard
After overtures from AMD’s most senior executives, HP was coming to the view that AMD’s new chip was the best for some of its server systems. But the deal was not sealed yet. So as not to run the risk of a leak that would let Intel retaliate and sabotage its plans, AMD gave its efforts to grow market share the code name MAID, an acronym for Microsoft, AMD, IBM, and Dell. The companies represented the firms that were integral to the efforts t...
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Both men were immigrants to the United States, though Ruiz had a far more inspiring tale of hope and triumph, which lent a soft edge to an otherwise imperious facade.
Ruiz was born into a poor Mexican family. As a young man, he would walk across the border every day from his home in Piedras Negras to attend high school in the South Texas town of Eagle
Pass. He didn’t start learning English until he was sixteen, but he grad...
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(One of the perks of the investment was that Rajaratnam received free flying time. When Galleon was still small, he flew the firm down to New Orleans for a company trip in a Gulfstream IV private jet.)
Most of the loan—$300 million—came from Lehman Brothers, which bore the least risk in the event there were losses in Voyager. The three equity partners—Gupta, Trehan, and Rajaratnam—carried the greatest risk. If there were losses in Voyager, they would shoulder them first.
In efficient markets, the easiest way to “arbitrage consensus” is to have inside information—a tip, for instance, that a large semiconductor company is poised to make an unexpected acquisition or that a firm is expected to report an earnings shortfall.
Whenever they could, they paid you back in the best currency around, information. It was exactly the course Rajaratnam took with his own brother Rengan when he invested $1 million in Rengan’s family and friends fund at Sedna Capital. It was Rengan’s trades in AMD that had launched the SEC investigation in 2006.
Some of his colleagues griped about the grueling travel regimen that accompanied a career in consulting, but Kumar seemed to relish his peripatetic life.
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.
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.
He enjoyed the adulation, the verbal stroking that inevitably ensued.
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.”
“So I’ll tell you how to play, it’s very straightforward,” said Kumar, taking an irritatingly didactic tone.
Some agents are more adept than others at manning the wire, a job that within the FBI is known for its drudgery.
few times during the investigation a call that could have yielded important evidence got “minimized,” meaning it isn’t recorded at all. It is hard to fault the FBI agents, though.
Like Michael Corleone, Rajaratnam was smooth and effective. He devised ways to get potential sources like Goel indebted to him and then he started asking for information.
Rengan most resembled Michael Corleone’s older brother Sonny, who was portrayed as a hothead and a ruthless killer. Rengan’s bombastic answers during his deposition reminded them of Sonny. R. K. Rajaratnam, the former ConAgra executive who came to work for his brother Raj, was in their minds Fredrico “Fredo” Corleone. He had a twisted face like Fredo and was widely considered inept, the weakest link among the trio of brothers.
The government believed Karpel was a participant in an overlapping insider trading ring involving Zvi Goffer, a trader who had worked briefly at Galleon. The FBI was wiretapping Goffer’s phone and decided to approach Karpel after they listened in on a call between him and Goffer on December 31, 2007. In the call, Karpel told Goffer that drugstore chain Walgreens had made an offer to acquire Matria Healthcare.
The new caller was a woman named Danielle Chiesi. Her conversations with Rajaratnam on his cell phone titillated, touching on everything from sex to sport. Trading corporate news, Chiesi once said, was “like an orgasm.” It soon became clear to the agents and Michaelson that she inhabited a world of powerful men whom she played off one another to make her living. Her galaxy of sources was so impressive that Rajaratnam could not ignore her.
“I played him like a finely tuned piano,” she declared.
For Rajaratnam, the problem with Gupta was that like so many high-achieving executives, he was overcommitted. By the summer of 2008, he had his fingers in a myriad of ventures. New Silk Route, the private equity fund he helped found with Rajaratnam, was sucking more time from Gupta than it should have. His countless board positions, corporate and philanthropic, ate into his schedule. And if that were not enough, he was contemplating raising $600 million for a telecommunications fund.
Some of the richest men on the island of Manhattan—Henry Kravis and Stephen Schwarzman—had made their fortunes in private equity. Rajaratnam suspected it was Gupta’s desire to be in “the billionaire [sic] circle” of Kravis
and Schwarzman and not the “hundreds of millionaires circle” that was associated with Goldman Sachs directors that had prompted Gupta to explore the KKR opportunity.
The near collapse of Bear Stearns a few months before had focused investors on a growing risk: the failure of a securities firm would likely result in investor assets being frozen.
As beautiful women in slinky dresses gathered by the sleek rosewood bar and sipped cocktails, Rajaratnam delivered a powerful and moving speech. He likened Sri Lanka’s fishermen to hedge fund managers. “Every morning they go out to sea and try and catch as many fish as they can,” he told the thousand who had gathered. “And every night, just like hedge fund managers, they come back to port and eat what they catch.” Yes, and every once in a while, just like the Sri Lankan fishermen, hedge fund managers faced financial tsunamis that were as violent and humbling as the natural ones.
Buffett said he was prepared to accept the proposal on one condition. He insisted that the four senior executives of Goldman—Blankfein, Winkelried, Gary Cohn, and David Viniar—not sell any of their stock before his security was called or redeemed. It was vintage Buffett: he wasn’t going to put his money on the line if Goldman’s senior executives were not prepared to risk theirs.
Rosenbach walked into Rajaratnam’s office and closed the door. When he reappeared less than a minute later, he went to the trading desk, got on the phone, and shouted, “Buy Goldman Sachs. Buy Goldman Sachs.”
“Did I miss the takedowns?” Dassin would ask Lohier. It was his low-key but effective way of holding his lieutenant’s feet to the fire.
In early January 2009 in one wiretapped conversation with his former boss, Far divulged that Atheros Communications Inc. would surpass Wall Street’s expectations and “do 98, 99 million” in quarterly revenue, a tidbit he gleaned from Ali Hariri, an Atheros executive.
Klein’s manner left no doubt that the New York prosecutors meant business. Within weeks, Lee agreed to cooperate with the government. He started making consensual recorded telephone calls to one of his former bosses, the granddaddy of the hedge fund world, SAC’s Steven Cohen. On the pretext of seeking to get a job again at SAC, Lee telephoned Cohen a number of times. In the course of conversation, he rattled off about twenty stocks, many technology company shares, in which he could obtain confidential, nonpublic information.
The other two, the Bowman Technology fund, run by former Fidelity manager Lawrence A. Bowman, and Andor Capital Management, spearheaded by former Goldman Sachs technology analyst Daniel Benton, had shuttered. Bowman was a casualty of the 2001 tech bust, and Benton had thrown in the towel in 2008, one of nearly fifteen hundred to close its doors amid the market meltdown.
Rajaratnam escaped by the skin of his teeth, even though his funds suffered blistering losses and large outflows too. Amid it all, he had never violated the one shibboleth held sacred in the hedge fund world: he was proud that he had not imposed “gates” on investors, prohibiting them from withdrawing their money from Galleon. “It is our investors’ money and they have the right to do whatever they want with it even if it means withdrawing all the funds from Galleon and destroying our firm,”
As outrageous as it sounded, the question wasn’t a joke. Among Rajaratnam’s close associates there was speculation about their boss’s ties to the Liberation Tigers of Tamil Eelam (LTTE), or Tamil Tigers, as the insurgent group was known. In his early years at Galleon, Rajaratnam had fielded a fantasy football team called the Tamil Tigers, whose name he later changed to the Yankee Slayers. At the office, Rajaratnam liked to boast that he was close to Velupillai Prabhakaran, the Tamil insurgent leader killed in battle, and in November 2002, he delivered a rousing appeal for Prabhakaran’s cause
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Competitors would make a calculated bet that Galleon would have to dump stocks at fire-sale prices; then, as they did in 1998 when high-flying hedge fund Long-Term Capital Management got in trouble, they would hammer stocks they suspected were in Galleon’s portfolio, making money as the stocks tumbled amid Galleon’s indiscriminate selling and creating a death spiral that fed upon itself.
Galleon had not capsized amid the financial tsunami of 2008, but the arrest of its founder was sure to torpedo it.
The following week, Rajaratnam returned to the Galleon office a changed man. He hardly looked anyone in the eye, and instead of walking with the usual spring in his step, he trudged the corridors with shoulders slouched. Galleon employees were struck by his gait. Rajaratnam was not a trudger.
He declared that he was innocent and his trades in stocks were rooted in the “mosaic” method, a style of investing that pieced together tiny bits of information to develop a larger investment thesis about a stock, and not on inside information.
If Rajaratnam took the government’s case to trial, Khan’s credibility could crumble amid a mountain of her own lies.
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,”
At the time, Gupta and his wife had assets of $134 million—a net worth of $84 million, an irrevocable trust of $38.5 million, and $11.2 million in cash and liquid assets. Under the section in her notes regarding estate planning, Webster had noted that the Guptas wanted to give 80 percent of their money to charity.
Was it a sense that passing along a bit of inside information was no more reprehensible an act than driving seventy miles per hour in a sixty-five-mile-per-hour speed zone? Was it that for the first time in his life Gupta was flying without a manual? (There was no HBS handbook or McKinsey code of conduct to comply with anymore.) Or was it that everyone else around him seemed to be doing it? After all, some of his own friends had had regulatory scrapes before and emerged with hardly a bruise.
Naftalis countered, arguing that the offense is “one piece but one piece of a larger puzzle.” It was “aberrational behavior.”
