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08/27/2013

Book Review: The Billionaire's Apprentice


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Billionaires-apprentice

The billionaire is Raj Rajaratnam. Rajaratnam's Galleon hedge fund had put him into the billionaire net worth group. He is currently serving a sentence of 11 years after being arrested for insider trading.

His apprentice was Rajat Gupta. Gupta was the managing director of Mckinsey & Co. He has been sentenced to two years for conspiracy and securities fraud.

Anita Raghavan's The Billionaire's Apprentice: The Rise of The Indian-American Elite and The Fall of The Galleon Hedge Fund is the detailed account of what happened—a graphic story of foolish and reckless greed.

The ambitious Raj Rajaratnam started in the electronics group at Chase Bank, then joined Needham & Co, rising to be its president. In 1997 he formed the Galleon Group hedge fund, which focused on his expertise in tech stocks. He looked for "the edge" from confidential inside information from what grew to be an array of company executives and Wall Steeters. What is not clear is how much of Galleon's returns and growth came from inside information. This raises the question of whether Rajaratnam could have done almost as well being totally honest.

The extent of Gupta's fall is illustrated in the opening of the book. It describes a White House dinner he attended in 2009 to honor the Indian Prime Minister. The dinner showed how, "in one generation Indian-Americans had vaulted from geeky outsiders to polished players in all facets of American society." No one reflected this more than Rajat Gupta. He was one of the first Indian-Americans to graduate from the Harvard Business School. In addition to rising to the top of McKinsey& Co, he was on top tier boards, including Goldman Sachs and Proctor & Gamble. He was a trustee of the Bill and Melinda Gates Foundation.

One of the bizarre aspects of Rajaratnam's story was how careless and foolish he was in his insider trading. As a top technology expert, he should have been aware of the possibility that the inside information coming to him via email and cell phones was easily available to government investigators. Stranger still, he continued insider trading after being informed the SEC was investigating him. The hard and diligent work of the SEC and the Justice Department is impressive. But what is also noteworthy that Rajaratnam and Galleon were the amateur hour of insider trading. For example, Rajaratnam did a trade in Goldman Sachs stock right after getting a phone call from Rajat Gupta following a Goldman Sachs board meeting.

The big unanswered question in The Billionaire's Apprentice was, "Why was a man at the level of 'Rajat Gupta the apprentice', providing inside information?" His net worth was $ 134 million. He had access to the very top tier of the global financial community. The book says it, "was Gupta's desire to be in the billionaire's circle," and that, "After McKinsey he put his eggs in the basket of money rather than reputation."

One of the tragedies surrounding Gupta's story is that his life had become a symbol of the rise of the Indian-American elite in American. While it is interesting to note the rise of Indian-Americans to powerbrokers, this group deserves better than the tawdry story of Gupta. A book on the path to success of this group would be valuable and welcome.

– Bill Hayes

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