Corporate May 12, 2011
By Uttara Choudhury
A group of South Asian bankers in spiffy dark suits working next door at Goldman Sachs had slipped into FinancierPatisserie in New York's glass-enclosed World Financial Center for coffee. Suddenly news broke that Galleon founder Raj Rajaratnam had been convicted of insider trading and prying illegal information from a cluster of Indian tipsters. Will the guilty verdict tarnish the growing number of South Asians working on Wall Street?
"It's a big embarrassment," muttered the Indian banker at the World Financial Center before dashing back to the tall, fortress-like Goldman Sachs headquarters on Vesey Street.
Others feel the only "cultural significance" of the largest insider trading case involving hedge funds is as a signal that South Asians have risen high enough in finance to be entangled in a multimillion-dollar fiasco.
"Call it the law of large numbers or probability. When there are so many South Asians on Wall Street some will inevitably get enmeshed in these incidents. There is embarrassment involved but why should every South Asian feel defensive?" Arvind Panagariya, professor of economics at Columbia University and author of the bestselling book, India: the Emerging Giant told Firstpost.
During Wall Street's halcyon days, the second annual "Asians in Wall Street" networking event hosted by Merrill Lynch saw hundreds of Indians fill a 500-seat auditorium. The organiers had to turn away 700 bankers at the door because the venue was filled to bursting. Next year, they wisely pulled rank and invited only middle-level and senior bankers. According to the industry, there are more Indians and Chinese in bulge bracket investment banks like Goldman Sachs, JP Morgan Chase, Deutsche Bank and Credit Suisse than any other minority community.
Undoubtedly, the insider trading scandal has shocked all the Indian American overachievers. "It's an uncomfortable moment. Suddenly we are not just perceived as conformist, law-abiding people brilliant at math, science, computers and medicine. I think there will be this cloud hanging over the South Asian community," said financial analyst Kaliyur Venkat.
"Indian rock stars in the corporate world like Rajat Gupta are teetering. He could get a clean chit in the civil suit but it is a damaging moment," added Venkat.
From US attorney Preet Bharara who brought the insider trading case,to the accused, to a galaxy of star witnesses, there are South Asian fingerprints all over the sordid Rajaratnam saga. It has diminished the reputation of former McKinsey global head Rajat Gupta who retired in 2007 after becoming the first Indian-born CEO of a big transnational company. After his 34 years at McKinsey, Gupta won a seat on Goldman Sachs.
But prosecutors sought to maximise the impact of the Gupta tape by calling Goldman Sach's chairman Lloyd Blankfein to testify that Gupta's gossipy, buddy-buddy phone call to Rajaratnam violated the investment bank's confidentiality policies. In a July 2008 call, Gupta dishes the dirt on confidential board-privileged M&A discussions regarding Goldman's interest in acquiring Wachovia or AIG.
Anil Kumar, another former McKinsey consultant who has been a trial witness for the government, has testified that he violated client confidentiality. He leaked secrets about chipmaker Advanced Micro Devices.
Eyebrows are now being raised about the "ethnic clubbiness" of desis on Wall Street but that is a tad unfair as Wall Street is rife with countless cliques that trade tips. It shouldn't come as a surprise that Rajaratnam's personal network embraced other South Asians like Kumar he had studied with in the University of Pennsylvania's Wharton B-school in the early 1980s.
"Hedge funds strive very hard to get an informational edge but Raj obviously crossed the line. I don't think you can paint all South Asians as unethical. This incident has more to do with the hedge fund industry and the pressures to get an edge in the business. I don't think it has anything to do with whether you come from the East, West or the middle," Amit Bhatiani, a partner at private equity firm CX Partners, told Firstpost.
"Yes, Raj's personal network was South Asian so a lot of his friends are caught up in the scandal, but it still doesn't mean all South Asians are in the dock. It has put the hedge fund industry on the backfoot rather than South Asians. The hedge fund industry has to be more cautious about how it gets information."
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