Wednesday, 21 October 2009

Arrested for insider trading

Tough boss, brilliant investor, family man, and now under probe
NEW YORK, Oct 21 — On the outside, Raj Rajaratnam was rock hard: a driven, demanding hedge fund boss who called his talented employees “idiots” and worse.

A brilliant player on the world’s technology and health-care markets, he made hundreds of millions of dollars by betting correctly on the direction of stocks and bonds.

Inside, though, was a family man who kept his ageing parents in his sumptuous residence in Manhattan’s Upper East Side, where he lived with his wife and three children.

He loved seeing his kids wear Indian clothes at festivals like Deepavali and donated generously to causes as varied as the Harlem Children’s Zone, the tsunami relief effort in Sri Lanka and the Gates Foundation’s efforts to curb the spread of HIV in India.

Such were the twin worlds that came crashing down around the Sri Lanka- born billionaire last week when New York prosecutors arrested him for insider trading.

As head of Galleon Group, Rajaratnam, 52, presided over an investment empire that totalled some US$7 billion (RM23.8 billion) at its peak last year, perhaps the world’s biggest technology fund.

His own net worth, after he lost about a third of it during the carnage on Wall Street last year, was placed at US$1.3 billion earlier this year just as the recovery was starting.

“When you met him socially, he didn’t let on easily how big a man he was,” says an American private equity specialist who shared a lunch table with Rajaratnam in New York last year. “But then there also were people like Bill Clinton and Jim Wolfenson in the room, so there was no shortage of big egos around the place and it was easy not to be noticed.”

The journey to the top of the hedge fund world for Rajaratnam began in the early 1970s at St Thomas’ Preparatory School in Colombo, the capital of Sri Lanka. The alma mater of all three sons of President Mahinda Rajapakse, the school also has a strong rugby tradition.

Not surprisingly, the burly investor frequently described his role at Galleon as that of a “quarterback”.

At the time, the ethnic conflict that bloodied Sri Lanka for a quarter century had not yet begun, so his days were spent mixing freely with boys from the Sinhala majority although he himself was a Tamil.

That probably explains why three decades later, despite bazaar gossip that he funded the separatist Liberation Tigers of Tamil Eelam (LTTE), Rajaratnam has extended his giving to charitable causes to all groups in Sri Lanka.

When the Boxing Day tsunami hit large parts of Asia in 2004, for instance, he was on holiday with his family in Sri Lanka and had luckily left a beach resort the previous day. He gave US$5 million of his own money for tsunami resettlement that would benefit Sinhalas, Tamils and the smaller Muslim community.

More recently, he offered US$1 million to help resettle young Tamil Tiger guerrillas who had been drafted into the movement — an offer Colombo has been slow to accept.

From Colombo, Rajaratnam moved to Sussex in Britain, and then to the Wharton School of Finance. Since then, he has lived in the United States, and now holds dual nationality, retaining his Sri Lankan passport.

Joining Needham & Co after Wharton, Rajaratnam was promoted to president of the firm when he was just 34.

A few months later, bored with pushing people around, he began a small hedge fund with US$15 million.

Five years later, he bought the fund from Needham, renamed it Galleon and launched out on his own with a bunch of handpicked partners.

Driven by Rajaratnam, Galleon showed impressive results. He was so confident of what he was doing that he sometimes invited key clients to sit in on his 8.45am meetings with his analysts and investment teams.

“They came away impressed,” says a New York-based investment manager who has known some big money figures who attended those meetings.

“This guy clearly had all the smarts in a meeting where some of the fund managers were people with top engineering degrees themselves.”

Yet, all was not well inside Galleon’s galley.

One initial partner, Krishen Sud, quit in 2001, even though he is said to have earned US$48 million that year. Rajaratnam had accused him of removing client lists without authorisation.

Despite the loss of his top health-care investment manager, Rajaratnam prospered. In 2006, his best year, he reputedly made as much as US$400 million.

Thanks in part to his wife, Asha, he also had a rich social life. The Rajaratnams gave freely to charities and became trustees of the America India Foundation. Indeed, in Asian circles in New York, many see Rajaratnam as more Indian than Sri Lankan.

One of his donations however raised eyebrows — a US$400,000 gift in 2005 to the US-based Tamils Rehabilitation Organisation, a Maryland-based NGO. At the time it was a legitimate outfit, but two years later the US government, under pressure from Colombo, shut it down as a front for the LTTE.

It was around that time that the Federal Bureau of Investigation (FBI) assigned a man named B.J. Kang to investigate Rajaratnam. It is possible that it wanted to probe his Tamil Tiger connections, given that the Feds had permission to use wiretaps on him.

Soon, the FBI believed it had stumbled on enough evidence to nail the speculator for insider trading.

“It appears that Raj was careful not to use e-mail for the suspect trades but only the phone,” says a person who has studied transcripts of the phone conversations. “The phone chats, if accurate, could be damning for him.”

To be sure, insider trading charges are not easy to prove. Certainly, the quarterback himself is in no mood to see the opposition slip through.

Yesterday, in a note to clients, Rajaratnam vowed to defend himself.

“I am entirely innocent,” he said. — The Straits Times

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