1. Billionaire’s Apprentice by Anita Raghavan

“Billionaire’s Apprentice”  by Anita Raghavan should be an eye opener for all the stock and option traders out there particularly if they are a south-asian.

It makes one wonder if there is a proclivity for the south-asians to engage in such a fearless securities fraud (cheating with insider trading), if the stakes are raised even though they do have the skills to play it straight and win.

James Montier in his book “The Little Book of Behavioral Investing” highlights various biases when it comes to investing. The X-system vs. C-system, i.e., emotional vs. logical, is one of them. For the trekies, this is the behavioral difference between Dr. McCoy and Mr. Spock. Fear and Greed are the primary emotions and Greed got the best of the south-asian ring at the end. Apparently, they were not taught this important non-technical human behavior at Harvard or Wharton! Neither did they learn it by themselves. In her 2012 key note address at Ivey Business School, University of Western Ontario, London, Ontario, Canada, Lauren Templeton, the grand niece of Sir John Templeton stressed the importance of behavioral investing knowledge. Lauren was a mega fund manager since age 24!

The pedigree of these tipsters and the institutions they represent speak for themselves, Doon, IIT, Harvard, Wharton, McKinsey, Goldman Sachs, Proctor and Gamble, American Airlines, INTEL, Polycom, AMD (advanced micro devices) and Galleon fund. These tipsters violated their trust at the highest levels and let these institutions down.

The “Tamil Tiger” Raj Rajaratnam was the center piece and all the south-asian tipsters engaged with him as a friend with benefits; benefits in millions in exchange for insider information! Small wonder Raj Rajaratnam made the Forbes 400 list. Raj taught his younger brother Rengan Rajaratnam the art of insider trading when Rengan was running the Sedna Fund. Rengan made a reckless, humongous bet on AMD stock based on insider information from Roomy Khan and profited $700k in one trade, probably betting almost the entire portfolio. Wouldn’t this raise a red flag with the SEC (Securities and Exchange Commission) for a fledgling investor with a smaller Sedna fund? Yes it did. Anyway, Rengan Rajaratnam could not survive without insider information and the Sedna fund was dissolved.

Anita Raghavan’s vivid description clearly brings out in gory detail how big bets were placed using insider information from high places violating the trust of the institutions like Polycom, Intel and AMD. Sunil Bhalla, Rajiv Goel and Anil Kumar (Raj’s classmate at Wharton) were from Ploycom, Intel and AMD respectively. Roomy Khan, who provided inside information on Intel and Polycom also made  millions along with her husband only to lose it all at the end. Raj Rajaratnam hired Roomy Khan to work at Galleon Fund and then fired her for trading in her personal account which caused conflict of interest. Yet, Raj supported her with lots of cash in exchange for insider information on Polycom which Roomy Khan obtained from Sunil Bhalla.  It is totally unbelievable how a trusted executive like Sunil Bhalla could divulge top secret information at social gatherings and house parties with no ethics whatsoever! Rajiv Goel who is a classmate of Raj Rajaratnam at Wharton and a Treasury Director at Intel, let Raj trade in his (Goel’s) personal account because he did not know how to trade.

None of the south-asian in the ring knew how to trade except Roomy Khan. Raj was an expert trader, fund manager for Galleon fund specializing in tech stocks.
SEC found out from the records that Raj made a trade in Goel’s personal account with insider information (AMD) to pass on the benefit to Goel in return for insider information from Intel.

The unbelievable act came when Rajat Gupta, after retiring from McKinsey, one of the board of directors at Goldman Sachs besides Proctor and Gamble and American Airlines called Raj Rajaratnam, the Galleon Fund manager about the 5 Billion dollar investment that Warren Buffet was going to make in Goldman Sachs stocks within minutes after the important board meeting. This was not a public information. What was he thinking?   Beats me! The answer might be, the financial distress caused by major loss in Voyager venture and the future kick-back or profit sharing from Raj.

Even working at GE, Pratt & Whitney and Westinghouse, as a principal engineer, there was strict export control regulations in place. There were hefty fines and people got fired for petty violations in export control of company information. Export control training is mandatory. It is a very serious issue not to be taken lightly knowingly or unknowingly.

Even though the executives, Anil Kumar (McKinsey India), Rajiv Goel (Intel) and Rajat Gupta (McKinsey) were highly paid executives, their compensations paled in comparison  to what Raj Rajaratnam was making as admitted by themselves on various occasions. This is what lead Rajat Gupta become a partner in the Billion dollar Voyager fund 90% of which was owned by Raj and the balance 10% by Rajat Gupta. Hence the Title of the book, “Billionaire’s Apprentice”, I guess.
The life style Raj was living, for example, the African Safari with 90 of his friends and family on a private jet and gambling with high rollers at Atlantic City, etc. seduced his south asians friends in to the web of high comfort, extravagant materialistic life style. Raj had a multimillion dollar estate with tennis courts, basketball courts and swimming pool in Greenwich, Connecticut where tennis star Ivan Lendl lived. Rajat Gupta bought an estate in Westport, Connecticut where actor Paul Newman lived. No wonder Connecticut is the highest per capita income state in the continental USA.
In the end greed got them all and Raj Rajaratnam got 11 years in prison marking the fall of Galleon Fund and Rajat Gupta got 2 years. SEC, FBI and US Attorney’s office, New York worked on the case for several years gathering evidence to put them behind bars.

Moral of the Story:  Huge Desire, Huge Loss. Never trade on insider information.

2. Money a Love Story by Kate Northrup

Kate Northrup is a professional freedom seeker and creative entrepreneur. She spent the better part of 2011 on a road trip called “The Freedom Tour,” exploring and teaching financial freedom as an inroad to emotional and spiritual freedom. She created financial freedom for herself at the age of twenty-eight through building a network marketing organization of more than 800 people. Her philosophy is that if you free yourself financially you can be fully present to fulfilling your purpose on the planet.

Get this lovely book here.