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Old May 11, 2011, 10:43 PM
iDumb iDumb is offline
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Default Financial News

I didn't wanna open a thread just for an article, so this thread will be used in future for other important financial news. But if anyone is aware of the Rajaratnam case, this is an opinionated piece on that. I didn't really understand what this guy was trying to say.

Rajaratnam Conviction an Unwanted Sign of Arrival

Daniel Gross is economics editor at Yahoo! Finance.

Daniel Gross, On Wednesday May 11, 2011, 10:53 am EDT

The conviction of hedge fund manager Raj Rajaratnam on 14 counts of insider trading essentially brings to a close one of the largest criminal case of financial misdeeds in recent years. Before the verdict, 21 one of the 26 people accused of being part of a wide-ranging conspiracy to gather, dispense and trade on insider information had already pleaded guilty. The evidence presented at the trial certainly undermined the tepid faith that the markets offer a level playing field for individual investors.

The Rajaratnam insider-trading ring was a sideshow to the larger financial scandals of recent years. Its impact on the economy pales in comparison to the Lehman Brothers debacle. The sums of money and institutional failures involved were much less dramatic than in the Bernard Madoff affair. Yet the trial inspired interest in large measure because of its cast of characters. This wasn't a boiler room operation, or a bunch of mob-connected guys in New Jersey manipulating micro-caps. No, this was a conspiracy involving an investor who was able to tap into the nervous system of the financial system and extract valuable, profitable information.

When I sat in on the trial in late March and early April, it struck me that the case offered an updated twist on an old story: the rise and integration of immigrants into the establishment. While the revelations were enormously embarrassing, the trial marked a sign of arrival of sorts for South Asian immigrants. Raj Rajaratnam's story is that of an immigrant meritocrat, forming bonds and networks with those from a similar background, obtaining the best education and work experience possible -- and then putting it all to ill use.

Since large-scale immigration from India, Pakistan and Sri Lanka began in the 1960s, South Asians have generally been outsiders in American institutions: in politics, in the Fortune 500 and in the media. Ten years ago, perhaps the most well-known South Asian immigrant businessman was Apu Nahasapeemapetilon, the convenience store proprietor of The Simpsons. As recently as five years ago, then-Sen. Joe Biden stuck his foot in his mouth when noting: "You cannot go to a 7-Eleven or a Dunkin' Donuts unless you have a slight Indian accent. I'm not joking."

But that image of South Asians has changed rapidly in the past several years. In politics, second-generation Indian-American immigrants Bobby Jindal and Nikki Haley have won races for governor in Louisiana (2007) and South Carolina (2010), respectively. Aziz Ansari, a graduate of New York University's Stern School of Business and the son of Indian immigrants, plays a character on NBC's Parks and Recreation who bears the distinctly non-South Asian name of Tom Haverford. Actor Kal Penn, the son of Indian immigrants, has moved from the Harold and Kumar franchise, the movie The Namesake and the TV show House to the White House. In the corporate world, Indra Nooyi, who came to the U.S. from India to attend graduate school at Yale, was promoted in 2006 to CEO of the iconic American brand Pepsico. The following year Vikram Pandit was named CEO of Citi.

In its own way, the Rajaratnam trial highlights this trend of immigrants' arrival. Rajaratnam, who immigrated from Sri Lanka to attend the University of Pennsylvania's Wharton School of Business, helmed a $7 billion hedge fund, the Galleon Group. Rajaratnam wasn't getting tips from guys who loaded trucks or took out the trash. His network, which included many immigrants from South Asia, reached into blue-chip companies, name-brand consulting firms, even the sanctum sanctorum of American capitalism: the boardroom Goldman Sachs.

The days I attended the trial, the jury heard testimony from Rajiv Goel. As Peter Lattman of the New York Times noted, Goel and Rajaratnam "met in the early 1980s in Philadelphia as South Asian immigrants who had come to the United States for an elite business education at the Wharton School of the University of Pennsylvania." Goel worked as a finance executive at companies such as MetLife and Bank of America before arriving at Intel. I listened as Goel testified about how he had helped funnel information to Rajaratnam about a transaction that involved Intel and Clearwire. At one point, he corrected defense lawyer Terence Lynam's pronunciation of the name of another Intel executive, Sriram Viswanathan, an India-born executive who was a leader in the company's venture capital and WIMAX units. Viswanathan, who was not a target of the investigation, also testified at the trial. The government's first major witness had been Anil Kumar, a senior consultant at McKinsey and fellow Wharton classmate of Rajaratnam, who had immigrated to the U.S. from India. Kumar pleaded guilty to funneling information he gleaned from clients to Rajaratnam.

Others in the ring include Roomy Khan, a well-connected figure in Silicon Valley. As the Deecan Herald reported, she "allegedly helped Rajaratnam make $4 million in a day by passing on a tip from Indian origin Moody's analyst Deep Shah about Hilton hotel chain takeover by private-equity firm Blackstone Group."

Yet another South Asian immigrant figured prominently in the trial, although he wasn't accused of any wrongdoing. The prosecutors presented evidence that Rajaratnam was trading on information he got from a member of Goldman Sachs's board of directors: Rajat Gupta. It would be hard to get more establishment than Gupta, who had run the consulting firm McKinsey & Co. Beyond the McKinsey and Goldman posts, as his bio notes, the Indian immigrant was "chairman of the Board of Associates of the Harvard Business School; and Dean's Advisory Council, Massachusetts Institute of Technology Sloan School of Management."

Rajaratnam's crimes weren't those of a marginal outsider motivated by desperation or poverty. When the ring started, he was already a wealthy man many times over. The management fees he would have reaped from running Galleon for a single year would be enough to last most people a lifetime. Rather, his crimes stem from an impulse that has deep roots in America's financial system: the desire by those on the inside to game the system for further gain.

Daniel Gross is economics editor at Yahoo! Finance

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Follow him on Twitter: @grossdm. Email him at grossdaniel11@yahoo

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