Tuesday, October 8, 2013

The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund by Anita Raghavan

Forgive me for being thick: after reading Anita Raghavan’s book I had to think a moment in order to name the billionaire’s apprentice. The apprentice has to be Rajat Gupta -- himself a humble multi-millionaire -- who services the only billionaire in view: Raj Rajaratnam, founder of the Galleon hedge fund. Raghavan recalls Goethe’s Sorcerer’s Apprentice in her title to capture Gupta’s doomed adventure. But it is the sorcerer Rajaratnam, and not his apprentice, who brings Galleon crashing down; Gupta is destroyed in the process.

So what did Gupta do? The government taped a compromising phone call by Gupta to Rajaratnam where
Gupta reports the confidential discussions of the Goldman Sachs board (Gupta was then a Goldman director). Gupta was only one of Rajaratnam’s many sources, and it is not clear that his information was that useful. (Rajaratnam argued that he traded on a ‘mosaic’ of information; no one item served as the basis for his actions).

It is hard to dispute that Rajaratnam regularly traded on inside information.  But was all (or most) of Galleon’s fortune built on inside information? I asked the same question in my review of The Buy Side, a tell-all by Galleon-insider Tyler Duff. My question is scientific in spirit, not legal.

Even less clear is how Gupta benefitted from passing on his report of the Goldman meeting to Rajaratnam. But in any event, the jury was persuaded Gupta was guilty. Ragnan suggests that there might have been ulterior considerations leading to Gupta’s prosecution: Gupta was a consummate insider, vulnerable at a time when the public’s appetite for Wall Street prison sentences was inflamed by the financial crisis.

Raghavan’s story necessarily simplifies the grander affair -- and perhaps she has distorted things by highlighting the South Asian backgrounds of the individuals she covers (Rajaratnam is Sri Lankan, not Indian-American). Raghavan’s “Leading Actors” feature Gupta, Anil Kumar (who ‘sings’ to the authorities), Rajaratnam, Sanjay Wadhwa at the SEC, and Preetinder Bharara, the federal prosecutor. The Godfather had more ethnic diversity. Again, Rajaratnam had other (non-South Asian) sources passing him inside information, so why does Raghavan highlight Gupta, a last-minute prosecutorial stretch? As depicted, we view a network of South Asian immigrants, linked by common experiences (elite schools in Asia, Wharton and Harvard MBA programs) and -- more to the point, knowing each other intimately. Perhaps this shouldn’t surprise us, as Wall Street is only so big (though strictly speaking, the McKinsey consulting firm, where Gupta and Kumar spend most their careers, is not Wall Street).

The story of the downfall of Rajaratnam and Gupta is placed within a larger examination of the emergence of Indian-Americans in U.S. society. As Raghavan’s title suggests, she is concerned with the elite immigrants: the top graduates of India’s superb educational institutions whose migrations constitute -- from India’s perspective -- a tragic brain-drain but who have found unimagined success in the United States. For the greater part, she celebrates the former South Asians as a ‘model minority:’ hard-working, disciplined, energetic and focused.

But the seeds of self-destruction are present as well: the drive to succeed conflates with the insatiable quest for every-greater status and wealth. And, for most of Raghavan’s characters, the usual consequences follow.

Raghavan tells us in her Afterword that she too is an Indian-American success story -- and she displays characteristic humility and filial duty in giving tribute to her parents for their contribution to her successes. She begins and ends The Billionaire’s Apprentice with a quote by David Ben-Gurion: “In order for Israel to be counted among the nations of the world, it has to have its own burglars and prostitutes.” By this analogy, she intends to celebrate the overwhelming positive contributions by South Asians to America, while freeing that same community from any taint or shame occasioned by the spreading fame of an extraordinary scoundrel. As South Asians establish themselves in the United States, they will inevitably resemble the groups that came before them, which is to say, they will become more and more American. Wall Street scoundrels in particular have proceeded in all types of cultural flavors. So was the disease that infected Rajaratnam and Gupta picked up in America, and not carried over on a flight?

The Gupta story ends with a shocking revelation - his father similarly tripped. He was caught in an academic cheating scandal back in 1935. In India. But what is Raghavan’s point here? Was Gupta predestined to moral compromise by inheritance? This darker view hardly squares with the rest of the book.

The Billionaire’s Apprentice is shortlisted for the 2013 Financial Times and Goldman Sachs Business Book of the Year Award.

See my reviews of these other shortlisted books for the 2013 FT/Goldman Sachs Award:
Neil Irwin, The Alchemists
Viktor Mayer-Schönberger and Kenneth Cukier, Big Data

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