Monday, October 19, 2009

Indian-Americans Face Insider Trading Charges

Two prominent Indian-Americans, along with a Sri Lanka born billionaire, have been charged in what U.S. prosecutors say is the biggest insider-trading case in a generation. The scandal is now reverberating in South Asia, particularly the island nation of Sri Lanka.

It is estimated that billionaire Raj Rajaratnam, the founder of hedge fund Galleon Group under arrest in New York on charges of insider trading, has invested more than $150 million in Sri Lankan shares. Even rumors of his trades can send the market up or down. Born in Sri Lanka, he was educated at the prestigious Wharton business school in Pennsylvania and went to set up a hedge fund for boutique investment bank Needham. The hedge fund was spun off with Mr Rajaratnam at its head in 1997. Galleon was well known for its extensive research reports, according to the New York Times, and for having many senior technology executives as its investors.

In 2007, there was a minor scandal involving accusations of insider trading against Pakistani-American Atiq Raza, but it was settled out of court with the SEC when Mr. Raza agreed to pay $3 million fine. Under the terms of the agreement, Mr. Raza was also barred from serving as an officer or director of a public company for five years, and he was permanently enjoined from future violations of the federal securities laws.

The Wall Street Journal reports that fears about the future of Rajaratnam's and Galleon's investments in Sri Lanka caused a major selloff Monday. After losing about 3% during early trading, the Colombo Stock Exchange benchmark All-Share Price Index ended the day at 3082.91, down 1.6%. Shares in which Mr. Rajaratnam or Galleon hold major stakes were among the biggest losers.

Mr Rajaratnam is estimated to be worth about $1.3bn by Forbes magazine. Galleon, the hedge fund he founded, had managed up to $7bn in assets. He was investigated by the Federal Bureau of Investigation in 2007 for allegedly funding the Tamil Tiger rebel movement in Sri Lanka, the Central Bank of Sri Lanka said on Monday.

He was among several wealthy Sri Lankans who donated to the US-based charity, the Tamil Rehabilitation Organization, which may have been funneled to the Tamil Tigers.

In addition to Sri Lankan Raj Rajaratnam, 52, the accused include two Indian-Americans, Rajiv Goel, 51, of Los Altos, of Intel's treasury department, and Anil Kumar, 51, of Santa Clara, an executive at the global consulting group McKinsey & Co. Both were rising stars in the high-tech constellation of Silicon Valley. Locally established and internationally connected, the two men's work and reputations stretched to India and back, as they moved in the rarified air of global big business, according to a report in San Jose Mercury News. Kumar and Goel are both charter members of TIE, the Indus Entrepreneur, an organization of mostly Indian-Americans in Silicon Valley.

Goel and Kumar supplied information about their portfolio firms or clients to co-conspirators, according to the complaint, who in turn made profitable trades. Kumar was arrested in New York, then later released on a $5 million bond, while Goel appeared briefly before a federal judge in San Francisco Friday before reportedly posting a $300,000 cash bail and a $100,000 bond. Both of them have been put on leave by their respective firms. The investigation is likely to lead to insiders at several other firms beyond Intel, IBM and McKinsey.

In India, where Kumar had been heavily involved in the Indian School of Business, embarrased officials announced he had voluntarily taken an indefinite leave of absence from the board because of the scandal.

And like Kumar, Goel's Indian roots were deep. Before joining Intel, he worked in finance for one of India's largest business house, the Aditya Birla Group. With an MBA from the Wharton School, he also served as a corporate banker with Bank of America in San Francisco and managed a large portfolio of securities for Metropolitan Life out of New York, according to Mercury News.

The lead prosecutor Preetinder S. Bharara, the US Attorney for the Southern District of New York, also of Indian descent, said “This is not a garden-variety insider trading case." He alleged that the scheme made more than $20 million in illegal profits since 2006. According to the NY Times, Bharara, 40, was born in Ferozepur, India, and he was an infant when his parents immigrated to the United States in 1970. He grew up in Monmouth County, N.J., and graduated from Harvard in 1990 and Columbia Law School in 1993. A rising star in the Democratic Party, Bharara supervises over 200 lawyers who prosecute high-profile cases in New York City.

There have been other recent white collar crime cases against Indian-Americans. Earlier this month, an Indian-American lawyer in Los Angeles, Sandeep Baweja, 39, agreed to plead guilty to two felony charges relating to a scheme where he took more than $2 million awarded in a class action suit and lost it all on the stock market.

Last year, Vijay Taneja, an Indian-American investor and producer of Bollywood movies, was convicted of mortgage fraud in the United States.

This is, indeed, a sad day for many people of South Asian descent in the United States, particularly in Silicon Valley. Let's hope the accused receive a fair trial amidst the wave of negative publicity surrounding the case.


Related Links:

Haq's Musings

Atiq Raza Pays Fine, Settles Insider Trading Charges

US Mortgage Fraud Funds Bollywood

Insider Scandal Hurts Sri Lanka Stocks

Murder-Suicide in Silicon Valley

Bigotry Bedevils Silicon Valley Eatery

Pakistani-American: Mr. Thirty Percent of Silicon Valley

14 comments:

Anonymous said...

Greed has no caste, creed or religion. Materialism has pushed people beyond the moral lines and everything is justified if you are not caught or u can walk away with murder. There are cases of many indians who have been caught in this race and final reach to their logical conclusion of crash.

Anonymous said...

oh great. a muslim lady screwed Raj.
Good job.

http://www.nytimes.com/2009/10/22/business/22insider.html?_r=2&th&emc=th

Riaz Haq said...

Anon: "oh great. a muslim lady screwed Raj.
Good job."

I don't think religion has anything to do with it. She is just trying to save her own skin, hoping for a lighter sentence as one f the accused.

BTW, the guy prosecuting her (a Muslim name) and others, including Hindus, Jews and Christians, is also an Indian-American with a Sikh father and Hindu mother from Punjab.

Zen, Munich, Germany said...

"oh great. a muslim lady screwed Raj.
Good job."

If Raj the Billionaire makes crime a habit to gain a paltry 20 mill. (and also to lose 30 mill. in AMD trade), Muslim lady is just a coincidence. Sooner or later, he would have been caught

Riaz Haq said...

Anil Kumar, one of the Indian-Americans accused in the insider trading case, has pleased guilty, according to media reports:

Anil Kumar, a former director of global management consulting firm McKinsey, has pleaded guilty to fraud charges.

He says he made $2.6m (£1.6m) giving inside market information to one of America's richest men, Raj Rajaratnam.

Prosecutors allege a list of crimes, including that Mr Rajaratnam paid Kumar between $1.7-$2m for his tips.

Kumar entered the plea in a US District Court in Manhattan in a co-operation deal aimed at strengthening the government case against Mr Rajaratnam.

Secret tip-offs

The billionaire hedge-fund operator is said to have made $19m from investments after Kumar, a former senior partner and director at McKinsey & Co fed him tips between March and July 2006 about the acquisition of ATI Technologies by Advanced Micro Device.

But this week, John Dowd, Mr Rajaratnam's lawyer, said: "An analyst's prediction that AMD would acquire ATI was widely reported in the press more than seven weeks before the acquisition was announced."

The government filed papers this week in Mr Rajaratnam's case to say they planned to file additional charges against him after learning about the $19m, which prosecutors say raises the amount Mr Rajaratnam made from illegal deals to at least $36m in profits.

Riaz Haq said...

A recent Wall Street Journal report is implicating Rajat Gupta, a prominent Indian-American and former head of McKinsey in Galleon's insider trading scandal.

Here's the report:

Mr. Gupta, 61 years old, is one of a number of individuals who received letters from the government saying their conversations had been intercepted in phone calls through wiretaps and consensual recordings made by witnesses in the case.

No criminal charges or allegations have been filed against Mr. Gupta, nor is there any indication investigators are looking at his own stock trading. A spokesman said: "Mr. Gupta is unaware of any examination of any such issue and has done nothing wrong."

Mr. Gupta has served on the board's audit, compensation, corporate-governance and nominating committees. His term as a Goldman director ends in May.

In a March 19 release about Mr. Gupta's decision, Goldman Chief Executive Lloyd Blankfein said: "Rajat has made important contributions to Goldman Sachs as a board member," adding that "his independent advice, keen understanding of the issues and belief in our culture has had a tremendous impact on our firm."

Mr. Gupta had told Goldman in September 2008 that he didn't want to stand for re-election to its board but that Goldman officials persuaded him to remain in the post because of the turmoil in the markets, according to Mr. Gupta's spokesman. Goldman declined to comment.

In a March 22, 2010, court filing, the government told Mr. Rajaratnam's lawyers that its investigation was continuing and that it anticipates its "review of information will lead to further evidence relating to the charged crimes, including identification of additional uncharged co-conspirators."

In the filing, the government listed Goldman among 22 stocks in which it said it was scrutinizing trades by Mr. Rajaratnam and others involved in the case. The government said it was focusing on trades in shares of Goldman between June 2008 and October 2008, the height of the financial crisis, when the Wall Street firm's shares were gyrating because of fears about the prospects for the banking business.

Riaz Haq said...

Here's more on former McKinsey chief Rajat Gupta in today's Wall Street Journal:

NEW YORK—A federal prosecutor said that a former Goldman Sachs Group Inc. director was part of an alleged insider-trading conspiracy with Galleon Group founder Raj Rajaratnam.

The statements at a court hearing Friday were the first time federal prosecutors had publicly cited the involvement of the former Goldman director, Rajat Gupta, in the alleged scheme.

Earlier this past week, the Securities and Exchange Commission filed a civil administrative action against Mr. Gupta for allegedly sharing inside information with Mr. Rajaratnam when Mr. Gupta was a member of the boards of Goldman and Procter & Gamble Co.

Assistant U.S. Attorney Jonathan Streeter said that "the government is going to show on at least two occasions that Mr. Gupta attended Goldman Sachs board meetings" and that "within minutes of the meetings, he called Mr. Raj Rajaratnam."

Following the calls, Mr. Rajaratnam bought or sold his Goldman stock, Mr. Streeter said.

The alleged inside information included details before the public announcement of a $5 billion investment by Warren Buffet's Berkshire Hathaway Inc. at the height of the financial crisis in September 2008 and Goldman's first reported loss as a public company in fall 2008.

Mr. Rajaratnam allegedly bought "hundreds of thousands of shares" of Goldman Sachs within minutes of receiving the call regarding the Berkshire investment, Mr. Streeter said.
----------
The revelation was part of a hearing over objections to wiretapped telephone calls that prosecutors intend to play at Mr. Rajaratnam's trial on conspiracy and securities fraud charges, which begins next week. Mr. Rajaratnam has denied wrongdoing. At least one call prosecutors intend to play was between Mr. Gupta and Mr. Rajaratnam, but occurred in July 2008 before the alleged leaks. Mr. Rajaratnam's lawyers have objected to that call being played at trial.

"These allegations first made by the SEC are totally baseless. Mr. Gupta's 40-year record of ethical conduct, integrity, and commitment to guarding his clients' confidences is beyond reproach," said Gary Naftalis, Mr. Gupta's lawyer. "Mr. Gupta has done nothing wrong and is confident that these unfounded allegations will be rejected by any fair and impartial fact finder. There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo. In fact, Mr. Gupta had lost his entire $10 million investment in the GB Voyager Fund managed by Rajaratnam at the time of these events, negating any motive to deviate from a lifetime.

Mr. Gupta, the former head of consulting firm McKinsey & Co., hasn't been charged with any criminal wrongdoing.

The Wall Street Journal, citing people familiar with the matter, reported that Lloyd C. Blankfein, Goldman's chief executive, has agreed to testify at the trial in order to establish that information about Goldman was shared with board members, including Mr. Gupta.

Raj Rajaratnam is among 26 people charged in broad criminal insider-trading probe. Nineteen people have pleaded guilty in the probe.

On Friday, prosecutors also gave a preview of their case, saying the first two witnesses will be a Federal Bureau of Investigation agent and Anil Kumar, a former McKinsey consultant and a cooperating witness in the case.

Prosecutors indicated that they planned to play recorded telephone conversations between Mr. Rajaratnam and Mr. Kumar, as well as conversations between Mr. Rajaratnam and his employees and with his younger brother, Rengan Rajaratnam.

Mr. Streeter, the prosecutor, said they intend to show at trial that Rengan Rajaratnam was a Galleon employee during the conspiracy and a co-conspirator. No criminal charges have been disclosed against him.

Riaz Haq said...

For those readers who don't know Rajat Gupta, here's how Newsweek describes him:

Rajat Gupta…stands to lose powerful friends and worldly influence. Few climbed higher than Gupta, the former managing director of consulting powerhouse McKinsey & Co. As a Goldman board member, Gupta, 62, is said to have phoned hedge-fund baron Raj Rajaratnam right after a crucial board meeting during the financial meltdown to tell his pal that Warren Buffett was supplying $5 billion to prop up the bank. Rajaratnam’s fund netted $900,000 overnight thanks to the tip. The SEC has filed a civil suit, though Gupta says he’s done nothing wrong.

Anxious India…stands to lose a national hero. Born and schooled in India, Gupta was widely celebrated in his home country, where he established a new business school in 2001 and has had the ear of Prime Minister Manmohan Singh. An admirer once compared Gupta to the philosopher and priest Thomas Aquinas. “It’s a bit of a disappointment when one of your heroes has fallen,” a former chief executive of Procter & Gamble India told the Financial Times. Those watching the trial from the subcontinent and looking for a local hero might root for Preet Bharara, the Indian-born U.S. attorney who is prosecuting the case.


http://www.newsweek.com/2011/03/13/wall-street-in-the-dock.html#

Riaz Haq said...

A Pakistani-American executive Kamal Ahmed has been caught in the Galleon financial scandal. Here's an excerpt from a San Francisco Chronicle report:

.. Kamal Ahmed, a Morgan Stanley managing director in Menlo Park. According to federal prosecutors, he provided inside information about Advance Micro Devices' July 2006 takeover of a Canadian firm, ATI Technologies, information that ultimately found its way to the captain of the pirate ship hedge fund, Raj Rajaratnam.

Ahmed's alleged involvement was revealed in a government court document Friday concerning Rajaratnam's trial, scheduled for Feb. 28.

The 42-year-old banker is cooperating with investigators, said his lawyer, Douglas Tween of New York's Baker & McKenzie in a statement. He is "confident that when the investigation is completed, and all the facts are gathered, it will be shown that he did nothing illegal or unethical."

According to securities filings and other sources, Ahmed works at Morgan Stanley's investment practice in Menlo Park. He was one of 241 new managing directors named by Morgan Stanley in December 2007.

On its website, OPEN Silicon Valley, a Pakistani American business organization, Ahmed, a Los Altos resident, is described as having "led a wide variety of financing transactions and has executed numerous mergers & acquisitions" for Morgan Stanley since 1999," according to information Ahmed provided to the organization.

Prior experience included stints at Merrill Lynch and Credit Suisse First Boston.

According to Institutional Investor, Ahmed was one of two Morgan Stanley managing directors advising Hewlett-Packard on its $2.7 billion takeover of 3Com last year, earning the investment bank tens of millions of dollars in fees.

He is listed on the advisory board of Folio3, a Redwood City organization with offices in Pakistan and Bulgaria, which is "focused on helping entrepreneurs and small enterprises successfully build and manage an offshore software development presence."

A Yale economics graduate and Cornell University MBA, with 383 connections according to his LinkedIn profile, Ahmed could have plenty to say if he's cooperating with the feds. Morgan Stanley advised AMD on the ATI deal, and provided a $2.5 billion loan to finance it.

Saratoga resident Anil Kumar, a McKinsey consultant since fired by the firm, pleaded guilty and was fined $2.8 million last year for providing insider information to Rajaratnam, including the planned AMD takeover of ATI.

Riaz Haq said...

Here are some tidbits of gossip by Galleon scandal defendants caught on tape and reported by WSJ:

During the July 29, 2008, call, Messrs. Rajaratnam and Gupta deride Mr. Kumar's aptitude for doing investment deals. "I'm getting a feeling that he's trying to, just...be a mini-Rajat, right?" Mr. Rajaratnam says on the tape. "Without bringing anything new to the party, right?"

"Yeah, yeah," says Mr. Gupta, who previously oversaw Mr. Kumar as managing director at McKinsey.

Mr. Kumar had testified that Mr. Rajaratnam had given him more than $2 million through offshore accounts for inside information on McKinsey clients.

"Honestly, Rajat, I'm giving him a million dollars a year for doing literally nothing," Mr. Rajaratnam tells Mr. Gupta on the July 2008 call.

"I think you're being very generous," Mr. Gupta replies. "But he should sometimes say thank you for that, you know?"

In the same conversation, Mr. Gupta called fellow Goldman directors "an opportunistic group," saying that though they believed commercial banking was a low-return business, they might buy Wachovia Corp. if it were "a good deal."

At other times, Mr. Rajaratnam turns around and talks about Mr. Gupta. In a May 28, 2008, call, Mr. Rajaratnam gossiped with Mr. Kumar about how Mr. Gupta had overextended himself with corporate board positions and other responsibilities.

"You know that his family suffers," Mr. Rajaratnam says on the tape. "I asked him, 'So are you outsourcing your wedding or how are you doing it?'" Mr. Gupta's daughter was married a few months later, according to online photos of the event.

In an Aug. 15, 2008, call, Mr. Kumar speculates that Mr. Gupta is being "greedy" by pursuing a possible job at a private-equity firm run by wealthy investor Henry Kravis, so he can be "in that circle."

"That's a billionaire circle, right?" asks Mr. Rajaratnam. "Goldman is like the hundreds-of-millionaires circle." Mr. Rajaratnam then suggests Mr. Gupta wants to make $100 million "without doing a lot of work."

Messrs. Rajaratnam and Kumar also speculate about Mr. Gupta's "personal family crisis," and discuss his wife's unhappiness with his travel schedule and gossip about another couple's marriage as they make plans to meet for dinner at Manhattan's posh Nobu restaurant.

Riaz Haq said...

Here's a BBC report on the trial proceedings:

A former Intel executive has said that he passed company information to his friend Raj Rajaratnam in the biggest Wall Street insider-trading trial in decades.

Rajiv Goel made the claims as a witness for the prosecution.

Former billionaire hedge-fund manager Mr Rajaratnam is accused of making more than $45m (£28m) by illegally trading on insider information.

Mr Rajaratnam denies all charges.
Close ties

Mr Rajaratnam was arrested in October 2009, and has been freed on bail of $100m.

Should he be found guilty then he may face a prison sentence of more than 20 years.

Prosecutors have called the case the "largest hedge fund insider trading case in history".

They claim that Mr Rajaratnam used a network of contacts to get information that allowed him to make illegal profits from stock trades.

Mr Goel is described as a close friend of Mr Rajaratnam who told him the details of a business deal days before they became public knowledge.

"I was afraid I was doing something where, if it turns out to be wrong, it will have a bearing on the friendship," Mr Goel said in a Manhattan court room.

So far more than two dozen people have been criminally or civilly charged in the case.

They include staff at some of America's biggest companies, including IBM and Intel.

As of now, 19 have pleaded guilty.

Riaz Haq said...

Indian-Americans are being scrutinized by the IRS for tax evasion, according to a NY Times report:

Last July and September, the Justice Department mailed “target” letters to around 50 Indian-Americans with offshore bank accounts, telling them that they were under scrutiny for suspected offshore tax evasion through accounts in India, Mr. Horn said.

Credit Suisse and Swiss cantonal banks are also under scrutiny. Robert Katzberg, a white-collar criminal defense lawyer in New York, said that the pressure on HSBC showed that “the fallout of the UBS scandal, which still has far to go within Switzerland, has spread to other countries.”

The request, made in court papers filed in the Federal District Court in San Francisco, seeks to force HSBC’s main United States affiliate, HSBC Bank USA, to turn over details of accounts held by wealthy Americans from 2002 through 2010 through the bank’s affiliate in India, HSBC India. Approval from a federal judge is required before the Internal Revenue Service can issue the summons.

HSBC Bank USA operated representative offices for HSBC India under the name N.R.I. Services — N.R.I. stands for Non-Resident Indian — in New York and Fremont, Calif., according to court documents. The offshore private banking services were offered to people of Indian origin living outside of India.

In a statement, HSBC said that “while we haven’t seen the summons, HSBC does not condone tax evasion and fully supports the U.S. efforts to promote appropriate payment of taxes by U.S. taxpayers.”

It continued, “While complying with the law in all the jurisdictions in which it operates, including India, HSBC cooperates with requests from U.S. authorities.”

The statement added: “We have been engaged in a constructive dialogue with U.S. authorities. We hope any ‘I.R.S. Summons’ issues can be resolved expeditiously.” A bank spokeswoman, Juanita Gutierrez, declined to comment further.

HSBC is one of the biggest banks for clients from India, China, Hong Kong, Singapore and elsewhere in the East, according to top tax lawyers. In 2007, the bank said in a press release announcing the opening of its N.R.I. office in Fremont, Calif., that it served more than 160,000 non-resident Indians worldwide.

The release announced a “new banking solution” for nonresident Indians “that allows the N.R.I. community to conduct cross-border banking transactions.” In 2003, after the technology bubble, Merrill Lynch estimated that there were 200,000 millionaires of Indian origin in the United States alone, part of the explosion of wealth among Indians in recent years.

In January, federal prosecutors indicted a former HSBC client, Vaibhav Dahake, who was born in India and became a naturalized American citizen in 2006. Mr. Dahake, according to court papers, told prosecutors that HSBC had sought out wealthy Indian-Americans for undeclared offshore banking services through N.R.I. Services. The bank was not identified in the papers but was confirmed at the time as HSBC by people close to the matter.

Mr. Dahake, according to his indictment, told prosecutors that his banker had told him that no United States disclosure forms were required, that the account was not taxable in India and that no forms reporting the interest income would be filed with the I.R.S.

Holding a foreign or offshore account is legal, but American citizens and residents must file annual disclosures with the I.R.S. for accounts with more than $10,000.


http://www.nytimes.com/2011/04/08/business/global/08tax.html?_r=1&scp=1&sq=hsbc%20india&st=cse

Mayraj said...

Earlier this year, Raj Rajaratnam, founder of the Galleon Group hedge fund, was convicted of conspiracy and securities fraud in one of the biggest insider-trading cases in the history of Wall Street. But there was another reason the federal government was interested in Rajaratnam—his alleged financial support for Tamil separatists in Sri Lanka, whose cause is spearheaded by the ferocious Tamil Tiger terrorists. Vanity Fair’ s David Rose gets the untold story from a Tamil Tiger turned F.B.I. informant.

See also:
http://www.bloomberg.com/news/2011-09-21/u-s-prosecutors-close-to-charging-rajat-gupta-wsj-reports.html
U.S. Prosecutors ‘Close to Charging’ Rajat Gupta, WSJ Reports

http://blogs.reuters.com/felix-salmon/2011/05/19/how-rajat-gupta-corrupted-mckinsey/
How Rajat Gupta corrupted McKinsey
http://articles.economictimes.indiatimes.com/2011-03-27/news/29194764_1_rajaratnam-rajat-gupta-fund-billionaire
Did millionaire Rajat Gupta suffer from billionaire envy?
http://www.cnbc.com/id/41853809/Rajat_Gupta_Bigger_Than_Madoff
Rajat Gupta: Bigger Than Madoff?
http://blogs.wsj.com/deals/2011/03/16/mean-street-the-disgrace-of-rajat-gupta/
Mean Street: The Disgrace of Rajat Gupta
http://www.businessweek.com/magazine/content/11_22/b4230056624680.htm
How Rajat Gupta Came Undone
The former McKinsey head was a gilded member of the corporate elite. But a tape of his voice, divulging secret details of a Goldman board meeting to a convicted hedge fund manager, cost him what no amount of money can buy
http://blogs.hbr.org/cs/2011/03/the_tempting_of_rajat_gupta.html
The Tempting of Rajat Gupta

Mayraj said...

Rajaratnam and Gupta seem to indicate South Asian culture of corruption is alive and well in West!
These people were already rich and had good reputations.They didn't need to do this sleazy behavior.

http://www.dailymail.co.uk/news/article-2053561/Former-Goldman-Sachs-director-linked-Wall-Streets-biggest-insider-trading-scandal-surrender-FBI.html
Former Goldman Sachs director caught up in Wall Street's biggest insider trading scandal 'to surrender to FBI'

Read more: http://www.dailymail.co.uk/news/article-2053561/Former-Goldman-Sachs-director-linked-Wall-Streets-biggest-insider-trading-scandal-surrender-FBI.html#ixzz1btRo2ToN