April 17, 2024

DealBook: From Morgan Stanley, Investing in Women on Corporate Boards

The lack of women on corporate boards has been a hot topic in financial circles recently, especially after a debate in Europe last year over imposing quotas.

Now, Wall Street is offering a free-market approach to the issue.

A team within Morgan Stanley’s wealth management division is starting a new portfolio which seeks to invest in companies that have demonstrated a commitment to including women on their corporate boards. The strategy, known as the parity portfolio, is scheduled to get going on April 1.

In a report last summer, Credit Suisse’s research institute found that over a six-year period, companies with “at least some” women on their boards did better, in terms of share price, than those with none.

“It just seemed to make sense, given I’m a feminist and an investment adviser,” said Eve Ellis, a financial adviser with the Matterhorn Group at Morgan Stanley Wealth Management, who is running the strategy with her colleague Nikolay Djibankov. “I’m frustrated by the fact that there are so few women on boards.”

The strategy seeks to encourage companies to think deeply about the gender makeup of their boards. Only companies with at least three women board members will be included in the portfolio. The strategy, being marketed to individuals and institutions, requires a minimum investment of $250,000.

The portfolio is avoiding tobacco, firearms and oil companies, and it is overweighted in consumer discretionary and health care companies, according to Ms. Ellis. All of the companies in the portfolio are based in the United States.

In addition to the Credit Suisse report, Ms. Ellis cited research from McKinsey Company and the nonprofit organization Catalyst to support the investment thesis.

A proposal in Europe to require companies to have 40 percent of their board members be women generated considerable controversy last year. After the plan was revised, the European Commission approved a proposal in November aimed at making the requirement a law.

Still, research on the matter is not conclusive, Steven M. Davidoff, DealBook’s Deal Professor, wrote in September.

“That men and women are different may be true,” Mr. Davidoff wrote, “but this still doesn’t mean that the more women there are, the better the company’s profits.”

Article source: http://dealbook.nytimes.com/2013/03/20/from-morgan-stanley-investing-in-women-on-corporate-boards/?partner=rss&emc=rss

DealBook: Jurors Begin Deliberations in Insider Trading Trial

Former Goldman Sachs board member Rajat Gupta leaves Manhattan Federal Court in early June.Andrew Kelly/ReutersFormer Goldman Sachs board member Rajat Gupta leaves Manhattan Federal Court in early June.

As head of the elite consulting firm McKinsey Company, Rajat K. Gupta associated with corporate chieftains and heads of state around the world.

Today, his fate rests in the hands of a retired librarian, a freelance beauty consultant and 10 other New Yorkers.

A jury of eight women and four men concluded their first day of deliberations on Thursday without a verdict in the insider trading trial of Mr. Gupta.

The government has charged Mr. Gupta, 63, a former director of Goldman Sachs and Procter Gamble, with leaking boardroom secrets about those two companies to Raj Rajaratnam, the former head of the Galleon Group hedge fund.

Judge Jed S. Rakoff, the judge presiding over the trial in Federal District Court in Manhattan, briskly read his 24-page charging document to the jury on Thursday morning. Mr. Gupta sat at the defense table, flanked by his legal team, reading along. “Your duty is to decide the fact issues in the case and arrive, if you can, at a verdict,” Judge Rakoff said. “You are to perform your final duty in an attitude of complete fairness and impartiality.”

Two of the male jurors wore suits and ties for the first time during the monthlong trial, leading the lawyers and courtroom spectators to dissect the meaning of their wardrobe. A television producer speculated that they wanted to be interviewed in the event they reached a verdict. Another observer suggested that the suits and ties were meant to convey the message that they, and not the lawyers, were now in charge of the case.

Before the jury started their discussions, Judge Rakoff complimented one of the spiffed-up jurors on his bold pink tie. That juror — Juror No. 11, an executive at a nonprofit in Westchester County — was selected by the panel as its foreman.

At noon, an hour before the jury’s lunch break, one of the jurors received permission to go outside to smoke a cigarette.

There are six counts in the government’s indictment. One count is a conspiracy charge, accusing Mr. Gupta of engaging in an insider trading scheme with Mr. Rajaratnam, who last year was convicted by a jury after 12 days of deliberations.

The five other counts are discrete tips that Mr. Gupta is said to have given Mr. Rajaratnam about confidential corporate information — four relating to Goldman and one to P. G. Among them is the government’s accusation that on Sept. 23, 2008, Mr. Gupta told Mr. Rajaratnam about Warren E. Buffett’s $5 billion investment in Goldman ahead of a public announcement.

“You must consider each individual charge separately and evaluate each on the proof or lack of proof that relates to that charge,” Judge Rakoff said.

Beyond the smoking-break request, the jury sent two substantive notes to the judge on Thursday. It asked for copies of the testimony of Michael Cardillo, a former trader at Galleon who has pleaded guilty and is cooperating with prosecutors. Mr. Cardillo testified that in January 2009 he shorted Procter Gamble stock, or bet that its shares would decline, after he heard that “Raj’s guy on the P. G. board” said that the company was going to reduce its sales forecast. The second request asked for clarification on the legal definition of conspiracy.

During summations on Wednesday, Richard Tarlowe, a federal prosecutor, described the evidence against Mr. Gupta as “overwhelming.”

In his closing statement, Gary P. Naftalis, a lawyer for Mr. Gupta, decried the government’s case as speculative and lacking hard, direct evidence. He also appealed to the jury’s humanity, reminding them of the weighty task they had before them.

“In a few weeks, this case will be a dim memory to you,” Mr. Naftalis said to the jurors. “For Rajat Gupta, this is the only case. Whatever you do here will make whatever future he has left.”

Article source: http://dealbook.nytimes.com/2012/06/14/jurors-begin-deliberations-in-insider-trading-trial/?partner=rss&emc=rss

DealBook: New Charges Possible in Insider Case Against Gupta

Rajat Gupta, accused of giving information to a convicted hedge fund manager, leaving federal court on Thursday.Scott Eells/Bloomberg NewsRajat Gupta, accused of giving information to a convicted hedge fund manager, leaving federal court on Thursday.

Federal prosecutors said Thursday that they were likely to file a new indictment against Rajat K. Gupta, possibly adding new criminal charges in the insider trading case against the former head of the consulting firm McKinsey Company.

It was “more likely than not there will be a superseding indictment” filed in the case by the end of January, Richard C. Tarlowe, an assistant United States attorney, said during a pretrial hearing in Federal District Court in Manhattan.

Mr. Gupta, who sat on the boards of Procter Gamble and Goldman Sachs, is accused of divulging confidential information about those companies to his friend Raj Rajaratnam, the convicted former hedge fund manager now serving an 11-year prison term.

The 63-year-old Mr. Gupta is fighting charges of securities fraud and conspiracy and preparing for an April 9 trial. On Thursday, he appeared in court, flanked by a team of five lawyers.

Judge Jed S. Rakoff listened Thursday as the two sides sparred over a range of issues. Earlier this week, Mr. Gupta’s lawyers filed legal papers seeking to dismiss certain counts against their client, suppress the use of wiretap evidence and force the government to clarify its indictment.

During the two-hour hearing, Mr. Gupta’s primary lawyer, Gary P. Naftalis, pressed the government to clarify language in its indictment that suggested his client had leaked information about companies other than Procter and Goldman to Mr. Rajaratnam, the former head of the Galleon Group.

Mr. Tarlowe said the other company was J.M. Smucker, which is known for its jellies and jams.

In June 2008, Smucker said it was acquiring Folgers Coffee from Procter Gamble for about $3 billion. The government said previously in its indictment that the day before this announcement, Mr. Rajaratnam told a colleague that he had learned from a director of Procter Gamble that Smucker was buying Folgers.

On the wiretap issue, Judge Rakoff indicated that chances were slim that he would bar the government from playing secretly recorded phone conversations at Mr. Gupta’s trial. His lawyers are arguing that the law does not permit federal authorities to use wiretaps in insider trading cases.

Judge Rakoff cited the Rajaratnam trial, in which Judge Richard J. Holwell allowed the government to use wiretap evidence.

“Looking at it realistically, if I were the defense, I would not be optimistic on this particular motion,” Judge Rakoff said.

Though Procter was a focus of Thursday’s hearing, the trial is also expected to center on Goldman, where Mr. Gupta served as a director for four years.

The government has accused Mr. Gupta of leaking the bank’s earnings and other information to Mr. Rajaratnam, including Warren E. Buffett’s $5 billion investment in Goldman during the financial crisis.

Goldman executives could be called to testify, including the firm’s chief executive, Lloyd C. Blankfein, who testified in the Rajaratnam case.

The government has its own Goldman connection in the Gupta trial. Mr. Tarlowe, one of the two prosecutors, is a former investment banker at Goldman.

Article source: http://feeds.nytimes.com/click.phdo?i=f7c5372c288bde11062c3e2c0a86c137

DealBook: Rajat Gupta Seeks to Dismiss Counts and Toss Wiretaps

Rajat K. GuptaEric Piermont/Agence France-Presse — Getty ImagesRajat K. Gupta.

Lawyers for Rajat K. Gupta, a former director of Goldman Sachs charged with insider trading, filed a flurry of pleadings late Tuesday, seeking to dismiss counts, suppress wiretaps and force the government to clarify its indictment.

The filings outline the contours of Mr. Gupta’s defense as he prepares for a trial on April 9.

“The indictment reflects, and attempts to mask, the weakness of the case against Mr. Gupta,” his lawyers at Kramer Levin Naftalis Frankel wrote in their legal filing.

Mr. Gupta, 63, is the former head of the consulting firm McKinsey Company and, in addition to serving on Goldman’s board, was a director at Procter Gamble and AMR, the parent company of American Airlines. Described by his lawyers as “a self-made man who earned his sterling reputation through nearly 40 years as a global business leader and engaged philanthropist,” he is the most prominent businessman ensnared by the government’s widespread crackdown on insider trading.

In October, federal prosecutors charged him with five counts of securities fraud and one count of conspiracy for leaking Goldman and P.G.’s corporate secrets to Raj Rajaratnam, the former hedge fund manager serving an 11-year prison term after a jury convicted him of insider trading last spring.

On Tuesday, Mr. Gupta’s lawyers made three primary motions with the court seeking to buttress their client’s defense. In one, they asked for a dismissal of some of the five counts against Mr. Gupta.

“The indictment focuses on just two instances in which Mr. Rajaratnam is said to have traded on inside information he supposedly received from Mr. Gupta, but improperly uses those instances to create five purportedly separate substantive securities charges.”

A second filing asks the court to force the government to provide a “bill of particulars,” or a clarification of the indictment. Mr. Gupta’s lawyers say that the mountain of documents produced by the government during discovery — about 2.2 million pages and thousands of intercepted calls, with more to come — does not substitute for a bill of particulars.

A third court submission requests that Jed S. Rakoff, the presiding judge in the case, bar the government from using wiretap evidence against Mr. Gupta. Unlike the case against Mr. Rajaratnam, who ran the Galleon Group hedge fund, the government has no direct evidence, including telephone recordings, that showed Mr. Gupta engaged in insider trading. Instead, the government plans to build a case based on circumstantial evidence — like phone bills and trading records — to establish Mr. Gupta’s guilt.

Yet, there are at least two wiretapped conversations between Mr. Rajaratnam and his colleagues that, if used at trial, could be powerful evidence against Mr. Gupta. In one call, for instance, Mr. Rajaratnam tells a colleague, ”I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.”

Despite a judge’s refusal to bar the use of wiretaps in the Rajaratnam trial, Mr. Gupta’s lawyers argue that this ruling was incorrect. Mr. Rajaratnam’s lawyers are also expected to argue on appeal that the use of wiretaps against their client was unconstitutional.

A spokeswoman for the United States attorney’s office in Manhattan declined to comment.

Article source: http://feeds.nytimes.com/click.phdo?i=586d0d499e3ae4ce7fc49fe9ce553eb9

DealBook: U.S. Is Set to Charge Major Executive in Trading Case

Rajat K. Gupta, a former director of Goldman Sachs.Seokyong Lee/Bloomberg NewsRajat K. Gupta, a former director of Goldman Sachs.

9:02 p.m. | Updated

Federal prosecutors are expected to file criminal charges on Wednesday against Rajat K. Gupta, the most prominent business executive ensnared in an aggressive insider trading investigation, according to people briefed on the case.

The case against Mr. Gupta, 62, who is expected to surrender to F.B.I. agents on Wednesday, would extend the reach of the government’s inquiry into America’s most prestigious corporate boardrooms. Most of the defendants charged with insider trading over the last two years have plied their trade exclusively on Wall Street.

The charges would also mean a stunning fall from grace of a trusted adviser to political leaders and chief executives of the world’s most celebrated companies.

A former director of Goldman Sachs and Procter Gamble and the longtime head of McKinsey Company, the elite consulting firm, Mr. Gupta has been under investigation over whether he leaked corporate secrets to Raj Rajaratnam, the hedge fund manager who was sentenced this month to 11 years in prison for trading on illegal stock tips.

While there has been no indication yet that Mr. Gupta profited directly from the information he passed to Mr. Rajaratnam, securities laws prohibit company insiders from divulging corporate secrets to those who then profit from them.

The case against Mr. Gupta, who lives in Westport, Conn., would tie up a major loose end in the long-running investigation of Mr. Rajaratnam’s hedge fund, the Galleon Group. Yet federal authorities continue their campaign to ferret out insider trading on multiple fronts. This month, for example, a Denver-based hedge fund manager and a chemist at the Food and Drug Administration pleaded guilty to such charges.

A spokeswoman for the United States attorney in Manhattan declined to comment.

Gary P. Naftalis, a lawyer for Mr. Gupta, said in a statement: “The facts demonstrate that Mr. Gupta is an innocent man and that he acted with honesty and integrity.”

Mr. Gupta, in his role at the helm of McKinsey, was a trusted adviser to business leaders including Jeffrey R. Immelt, of General Electric, and Henry R. Kravis, of the private equity firm Kohlberg Kravis Roberts Company. A native of Kolkata, India, and a graduate of the Harvard Business School, Mr. Gupta has also been a philanthropist, serving as a senior adviser to the Bill Melinda Gates Foundation. Mr. Gupta also served as a special adviser to the United Nations.

His name emerged just a week before Mr. Rajaratnam’s trial in March, when the Securities and Exchange Commission filed an administrative proceeding against him. The agency accused Mr. Gupta of passing confidential information about Goldman Sachs and Procter Gamble to Mr. Rajaratnam, who then traded on the news.

The details were explosive. Authorities said Mr. Gupta gave Mr. Rajaratnam advanced word of Warren E. Buffett’s $5 billion investment in Goldman Sachs during the darkest days of the financial crisis in addition to other sensitive information affecting the company’s share price.

At the time, federal prosecutors named Mr. Gupta a co-conspirator of Mr. Rajaratnam, but they never charged him. Still, his presence loomed large at Mr. Rajaratnam’s trial. Lloyd C. Blankfein, the chief executive of Goldman, testified about Mr. Gupta’s role on the board and the secrets he was privy to, including earnings details and the bank’s strategic deliberations.

The legal odyssey leading to charges against Mr. Gupta could serve as a case study in law school criminal procedure class. He fought the S.E.C.’s civil action, which would have been heard before an administrative judge. Mr. Gupta argued that the proceeding denied him of his constitutional right to a jury trial and treated him differently than the other Mr. Rajaratnam-related defendants, all of whom the agency sued in federal court.

Mr. Gupta prevailed, and the S.E.C. dropped its case in August, but it maintained the right to bring an action in federal court. The agency is expected to file a new, parallel civil case against Mr. Gupta as well. It is unclear what has changed since the S.E.C. dropped its case in August.

An S.E.C. spokesman declined to comment.

The case could be a challenge for the government. Many of the defendants convicted of insider trading, including Mr. Rajaratnam, have been caught on wiretaps swapping secret information.

At Mr. Rajaratnam’s trial, the government played a recorded conversation between Mr. Gupta and Mr. Rajaratnam in July 2008. On that call, Mr. Gupta divulged that Goldman was considering a purchase of either Wachovia or American International Group.

Evidence that Mr. Rajaratnam traded on this information was never presented, however.

Two of the most incriminating calls played in court pertained to tips that the government said had come from Mr. Gupta. But those calls were conversations between Mr. Rajaratnam and his employees, which could make them inadmissible in a trial of Mr. Gupta.

In one call played for the jury, Mr. Rajaratnam told a colleague, “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.” In the other, Mr. Rajaratnam said to his trader, “I got a call saying something good is going to happen to Goldman.”

The S.E.C.’s original case also outlined evidence that could potentially be used at trial. That includes Mr. Gupta’s phone records of on Sept. 23, 2008. That day, the Goldman board met via telephone to consider Mr. Buffett’s $5 billion investment in Goldman.

“Immediately after disconnecting from the board call, Gupta called Rajaratnam from the same line,” the S.E.C. filing says. A minute later, Galleon funds bought more than 175,000 shares of Goldman just before the market closed, the agency says, and later netted a $900,000 profit when the deal was announced.

Though he had an enviable résumé and earned millions of dollars a year at McKinsey, Mr. Gupta became fixated on the extraordinary wealth showered on hedge fund managers and private equity chiefs, according to trial testimony. Consultants are well paid, but the compensation pales in comparison to those Wall Street titans.

Around the time of his retirement in 2007, he and Mr. Rajaratnam helped start New Silk Route, a private equity firm focused on investments in India. Though Mr. Rajaratnam never had an active role in the firm, he and Mr. Gupta were good friends, having met through their philanthropic interests.

Mr. Gupta periodically visited Mr. Rajaratnam’s hedge fund, Galleon, on Madison Avenue and 57th Street in Midtown Manhattan. The two would order Indian or Chinese takeout and kibitz in Mr. Rajaratnam’s office. Mr. Gupta became an investor in Galleon’s hedge funds.

As part of his foray into Wall Street, Mr. Gupta took a senior adviser post at K.K.R., the firm co-founded by his friend Mr. Kravis. During Mr. Rajaratnam’s trial, prosecutors played a tape of the hedge fund manager gossiping with a friend about Mr. Gupta’s ambitions.

“My analysis of the situation is he’s enamored with Kravis, and I think he wants to be in that circle,” Mr. Rajaratnam said. “That’s a billionaire circle, right?”

William K. Rashbaum contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=721bde38bac9de1d51e16a8eda4937a6

Deal Professor: Handicapping IAC’s Investment in Chelsea Clinton

Harry Campbell

Chelsea Clinton as a corporate director? Really?

Ms. Clinton was appointed last week to the board of IAC/InterActiveCorp, the Internet media conglomerate controlled by Barry Diller.

For her efforts, Ms. Clinton will be paid about $300,000 a year in cash and incentive stock awards. Not bad for a 31-year-old in graduate school.

Is IAC also getting a good deal, or is this another eye-rolling celebrity appointment?

Ms. Clinton appears to be a smart, capable individual. She worked in her 20s at the consulting firm McKinsey Company and at a hedge fund run by a loyal Clinton donor. She is now working at New York University and pursuing a doctorate at Oxford. Ms. Clinton appears to be level-headed, despite growing up in the limelight. She is also popular — her wedding last year was one of the social events of the year.

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But let’s be real. Ms. Clinton has this position only because she is the daughter of former President Bill Clinton and Hillary Rodham Clinton, the current secretary of state. This is clearly an appointment made because of who she is, not what she has done, one that defies American conceptions of meritocracy. Even most celebrity directors earn their way to such celebrity — sort of.

In fairness, while the reasons for the appointment are suspect, that does not mean Ms. Clinton cannot be a good, even great, board member. But questions raised by her selection speak to the larger issue of what types of directors should be on boards.

In the past, boards were too often passive instruments of the chief executive, and often included celebrities. Some examples: Sidney Poitier (the Walt Disney Company), Evander Holyfield (the Coca-Cola Bottling Company), Tommy Lasorda (Lone Star Steakhouse and Saloon), Lance Armstrong (the Morgans Hotel Group) and O.J. Simpson (Infinity Broadcasting). Mr. Simpson actually served on Infinity’s audit committee, the body responsible for supervising a company’s auditors.

Daniel Berehulak/Getty Images North America, via Getty ImagesChelsea Clinton is now a director of IAC/InterActiveCorp.

In recent years, the Securities and Exchange Commission and corporate governance advocates have tried to bring more professionalism to corporate boards. Public companies are now required to have a majority of independent directors on their boards. Directors on audit committees must have demonstrable financial knowledge, and companies are required to publicly disclose the skills of each director and state why that person was chosen.

In Ms. Clinton’s case, IAC said her “skills and background complement the existing areas of expertise of other board members.” In the absence of experience in the Internet industry or substantial business or other life experience, presumably IAC is going to assert that she was selected because she is smart. If so, other graduate students should dust off their résumés. There are plenty of struggling students out there who could use the extra $300,000 a year.

Another argument IAC could advance is that Ms. Clinton has an extensive network of contacts who can help the company’s business, and there is evidence that celebrity director appointments do create value this way.

In a recently released study, “Reaching for the Stars: The Appointment of Celebrities to Corporate Boards,” the professors Stephen P. Ferris, Kenneth A. Kim, Takeshi Nishikawa and Emre Unlu examined 700 celebrities who served on corporate boards from 1985 through 2006. The authors found that the appointment of a celebrity increased the value of a company over as long as a three-year period.

The authors postulate that celebrity directors create value by enhancing a company’s prestige and visibility and by using their connections to help the company.

If celebrities can create value through prestige or networking, why can’t this be done through a sponsorship agreement, or a joint venture? But for a company like IAC, with its grab bag of Web businesses, it is hard to see what prestige or networking value Ms. Clinton can bring.

In the wake of the financial crisis, board members need to devote serious time and resources to their duties, and be willing to question the actions of the C.E.O. and fellow directors. Too many boards, including those of Yahoo and Hewlett-Packard, have gotten into hot water for failing to act forcefully and to exercise their duties to run the company. Will a celebrity — even a smart, well-regarded one like Ms. Clinton — ask the hard questions we want a director to ask?

The particular company matters. IAC gets low marks on corporate governance from GovernanceMetrics International, a research and rating firm. A representative of the company recently wrote that IAC was rated poorly for “governance concerns including dual share classes with disparate voting rights, a board containing many overcommitted and nonindependent directors, and executive compensation that is not well aligned with company performance.”

IAC’s board is filled with high-powered friends of Mr. Diller, including Michael D. Eisner, Edgar Bronfman Jr. and Mr. Diller’s stepson. The celebrity bug appears contagious on this board. When Mr. Eisner served as chief of Disney, his board was also criticized for being filled with lightweights, celebrities and cronies, among them Mr. Poitier.

GovernanceMetrics also asserts that IAC’s executive compensation does not conform with best practices. Mr. Diller, who controls the company, serves only as board chairman, but he was paid about $3.7 million last year, while the new chief executive, Gregory R. Blatt, was paid about $18.6 million. For IAC, a midsize company with a market capitalization of $3.4 billion, this is a rather hefty payout.

Age is not a problem in Ms. Clinton’s appointment. Mark Zuckerberg, a Facebook founder and its chief executive, is about four years younger. And while it would be nice if Ms. Clinton had more experience, too often today directors are clones, having all sprung from the same business background and having been shaped by similar experiences. More diversity on boards may be welcome as it can lead to more effective debate and provide differing perspectives.

The real question is whether Ms. Clinton can act independently and provide value to the IAC board. While there are many doubts on that score — and while Ms. Clinton clearly did not earn this position — she can still demonstrate that she is up to the task.

Go for it, Chelsea.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=8bee41b560496b8ba622b66945be349a

DealBook: Galleon Chief’s Web of Friends Proved Crucial to Scheme

Anil Kumar, a former director at McKinsey  Company, was a prominent part of Raj Rajaratnam's network of information.John Marshall Mantel for The New York TimesAnil Kumar, a former director at McKinsey Company, was a prominent part of Raj Rajaratnam’s network of information.

As Raj Rajaratnam and Anil Kumar, a McKinsey consultant, walked out of a fund-raiser in Manhattan, Mr. Rajaratnam pulled his old friend aside and made him an offer: would Mr. Kumar provide him with insights for $500,000 a year?

“You have such good knowledge that is worth a lot of money to me,” he said, according to Mr. Kumar.

Mr. Kumar faced an agonizing choice. His employer barred its executives from outside consulting, but an extra half-million dollars a year — and the chance to do business with a powerful hedge fund manager — was tantalizing.

Weeks later, Mr. Kumar accepted.

That deal, struck on an autumn evening in 2003, was one of the many connections made by Mr. Rajaratnam over the years that gave him access to the inner secrets of dozens of publicly traded companies. His vast Rolodex of tipsters included former business school classmates, fellow hedge fund traders and technology industry executives whose origins, like his, were from the Indian subcontinent.

The Galleon networkAzam Ahmed and Guilbert Gates/The New York Times Click on the above graphic to get a visual overview of the Galleon information network.

In many respects, Mr. Rajaratnam was no different from the thousands of Wall Street stock pickers who diligently network with corporate executives and industry experts to gain an investment edge. But Mr. Rajaratnam, a 53-year-old Sri Lankan native, sought out information that was confidential, beyond the reach of research, and illegally traded on it, a jury in Federal District Court in Manhattan found on Wednesday, convicting him on all 14 counts of securities fraud and conspiracy.

The verdict punctuates a stunning downfall for Mr. Rajaratnam, who before his arrest in October 2009 was among the biggest hedge fund managers. First making his name as an adept picker of technology stocks at Needham Company, a small New York investment bank, he rode the tech market boom to strike out on his own, forming the Galleon Group hedge fund. At his peak, he was managing more than $7 billion in assets.

What made Mr. Rajaratnam stand out was not his proprietary computer models nor his skills in security analysis. Instead, colleagues marveled at the deep set of contacts he had cultivated inside Silicon Valley executive suites and on Wall Street trading floors.

Many of Mr. Rajaratnam’s tipsters came from the South Asian immigrant community, a relatively small group of Indians, Pakistanis and Sri Lankans who over the past several decades have made their mark in finance and technology. He met several important sources of illegal information through the South Asian club at the Wharton business school at the University of Pennsylvania. He connected with another primary informant through his philanthropic support of the Indian School of Business, a prestigious graduate school in Hyderabad, India.

All these contacts formed the core of Mr. Rajaratnam’s vast information network. From his office on Madison Avenue, Mr. Rajaratnam collected data about technology companies and then swapped it with sources across the globe. He spoke of getting an edge to beat the stock market, and for Mr. Rajaratnam, that edge was information.

But the conversations between him and his network were being secretly recorded by federal agents beginning in 2008. Prosecutors received approval from a judge to place a wiretap on Mr. Rajaratnam’s phone after a government informant taped calls with Mr. Rajaratnam exchanging secret business information. The portrait that emerges from those tapes is of a man who bolstered his formidable talents as a money manager by tapping the insecurities and desires of those within his circle for lucrative — and illicit — stock tips.

Twenty-six people have been charged in the government’s case against Mr. Rajaratnam; 21 have pleaded guilty. Some of those accused as co-conspirators were direct contacts, including Galleon employees and board members at publicly traded companies. He dealt with others through intermediaries: in one case, a fellow trader gave him corporate secrets provided to her by a Moody’s credit analyst.

Among those in Mr. Rajaratnam’s circle, Mr. Kumar was one of the more prominent. They first met in the early 1980s while at the Wharton School.

Others included another Wharton classmate, Rajiv Goel, a hapless executive at Intel; Adam Smith, a hardworking Harvard graduate at Galleon; and Danielle Chiesi, a hedge fund trader with deep connections inside publicly traded technology companies. All three pleaded guilty to swapping illegal stock tips with Mr. Rajaratnam.

With these people, Mr. Rajaratnam altered his approach, depending on the person or the situation. He could be direct at times, demanding information from his sources. He could also be solicitous, such as calling to check in with an informant after she underwent an operation. He fed the needs of those in his orbit who could be helpful to him, whether with money, tips or friendship.

In his soft-spoken manner, shaped by his years at secondary school and college in England, Mr. Rajaratnam alternately prodded, chided, ridiculed and flattered his sources. Above all, he was a good listener, saying little as those on the other end of the phone, eager to impress the hedge fund titan, kept talking.

“Getting information that others didn’t have was very valuable,” said a prosecutor during the trial. “It meant the defendant knew tomorrow’s news today, and it meant big money.”

The Good Soldier

Raj Rajaratnam loved to hire people like Adam Smith. With two Harvard degrees and a three-year stint as a Morgan Stanley banker, Mr. Smith impressed his colleagues with a tireless work ethic and detailed knowledge of the semiconductor industry.

Mr. Smith impressed his boss in other ways. From almost the moment he joined Galleon, Mr. Smith routinely trafficked in illegal stock tips from corporate insiders, and shared that information with Mr. Rajaratnam, he later said. Mr. Smith pleaded guilty in January and testified against Mr. Rajaratnam.

“Why did you do it?” asked a prosecutor during the trial.

“I was getting an edge on a company,” said Mr. Smith, 38, central casting’s idea of a banker, with close-cropped hair, wire-rimmed glasses and Hermès tie. “My motivation was to improve the profitability of my firm and to help Raj.”

His clinical answer betrayed a culture inside Galleon that conducted rigorous stock research but also, at least at the top of the fund, relentlessly dug for inside information. Combining the two — legitimate research with illicit tips — was known within Galleon as “having two torpedoes in the water,” Mr. Smith said. “If one of them misses, the other is likely to hit.”

Mr. Smith preferred the fast-paced, aggressive environment of a hedge fund trading floor to investment banking. In an anniversary report for his Harvard Business School class, he wrote that Galleon was “the first job I’ve truly loved, and I find the challenge of the stock market exhilarating.”

He approached his job like a dogged investigative journalist, albeit a very highly paid one, traveling the world to develop sources and pump them for corporate secrets. He forged a relationship with an Intel employee in Arizona who provided Mr. Smith with the company’s confidential financial data. He flew regularly to Taiwan, where he made contacts with technology executives who leaked their companies’ secret revenue numbers.

Mr. Smith also stayed close to his former Morgan Stanley colleagues.

In 2005 he traveled to Laguna Beach, Calif., for the bank’s annual technology industry conference. There an old colleague told him about Integrated Device Technology’s planned acquisition of Integrated Circuit Systems.

He e-mailed Mr. Rajaratnam about the tip with the subject line “the two eyes” — code for the two companies. When the companies announced the deal in June 2005 — bringing Mr. Rajaratnam nearly $3 million in profit, according to prosecutors — Mr. Smith said he felt a tinge of regret.

“I remember after the announcement having a sinking feeling in my stomach that this might be a problem,” Mr. Smith testified.

But, he added, “no one spoke to me about it so I moved on.”

The day after Mr. Rajaratnam’s arrest in October 2009, Mr. Smith left his apartment on Gramercy Park, where he lived with his wife and two young boys, and drove to his country house in upstate New York. There, he dumped his Galleon-issued laptop computer in the trash.

The Sad Sack

“Hey, get me a job with one of your powerful friends, man,” Rajiv Goel, the Intel executive, urged Mr. Rajaratnam. “I’m tired of this company.”

The request, steeped in equal parts insecurity and flattery, was textbook Goel.

Some 30 years after they met at Wharton, Mr. Goel and Mr. Rajaratnam found themselves in vastly different places. Mr. Goel was a dissatisfied midlevel manager in need of money and affirmation. Mr. Rajaratnam was a hedge fund titan.

Mr. Goel, perennially suffering bad luck, whether dealing with a damaged car or combating a rat infestation in his new home, seemed to walk through life with a cloud over his head. But his chummy relationship with his billionaire friend was a bright spot.

Secretly recorded conversations reveal a warm friendship: the men vacationed together with their families and joked easily with each other.

Conversations with Mr. Rajaratnam swerved from transactional to personal and back — one moment discussing a trip to Philadelphia for a business school reunion and the next Intel’s corporate secrets.

Mr. Goel gave his friend advance word of Intel’s earnings results and previewed a $1 billion investment the chip maker planned to make in a large wireless joint venture.

“He was a good man to me,” said Mr. Goel, who pleaded guilty and took the stand on behalf of the government. “I was a good pal, a good person to him, so I gave him the information.”

Still, he worried about passing tips to Mr. Rajaratnam, though not for fear of being caught.

“I was afraid that if it turned out to be wrong, it would have a bearing on the friendship,” he said.

It was a friendship with financial benefits. Mr. Rajaratnam supported Mr. Goel financially in a number of ways. He lent or gave Mr. Goel a total of $600,000 to help him buy a home and care for his sick father.

Mr. Goel also asked Mr. Rajaratnam to help him make money in the stock market. All told, Mr. Rajaratnam earned about $750,000 for him by trading on inside information in Mr. Goel’s account at Schwab.

Mr. Goel constantly sought the approval of his more successful friend.

On one call he boasted to Mr. Rajaratnam about an award he was receiving inside Intel and asked if Mr. Rajaratnam would read the write-up that won him the honor.

When Mr. Rajaratnam at first appeared uninterested, Mr. Goel seemed deflated.

“Does it always have to benefit you?” he asked.

The Hedge Fund Temptress

Danielle ChiesiJohn Marshall Mantel for The New York TimesDanielle Chiesi

Her platinum blond locks and bold manner turned heads in the tech world and on Wall Street.

Danielle Chiesi, a former beauty queen, was well aware of that attention, and used it to her advantage in the ultra-competitive world of hedge funds, where she plied her trade at New Castle Partners. And just as Mr. Rajaratnam worked his extensive network of South Asian contacts, Ms. Chiesi found her sexuality offered an edge in the male-dominated world of finance.

“I just got a call from my guy,” she told Mr. Rajaratnam in a July 2008 call. “I played him like a finely tuned piano.”

The company under discussion, Akamai, was going to do worse than the market expected, offering a potential windfall for her and Mr. Rajaratnam. When asked by the presiding judge in Mr. Rajaratnam’s trial whether there was a physical relationship between Ms. Chiesi and her Akamai source, a prosecutor demurred.

Ms. Chiesi, who pleaded guilty to crimes related to insider trading but did not testify during the trial, had an affair with Robert Moffatt, a former executive at I.B.M. who is serving jail time after admitting to passing confidential information to Ms. Chiesi. She also had an affair with her boss, Mark Kurland, who also pleaded guilty to insider trading.

Squeezing secret information from corporate insiders excited Ms. Chiesi.

“It’s a conquest,” she told Mr. Rajaratnam on a conversation secretly recorded by the government. “It’s mentally fabulous for me.”

Ms. Chiesi met Mr. Rajaratnam in 2007 at a Wall Street conference and became fast friends. Secretly taped conversations in 2008 feature conversations littered with expletives, breathless market talk and Ms. Chiesi referring to Mr. Rajaratnam as “baby” and signing off with “I love you.”

Mr. Rajaratnam was solicitous of Ms. Chiesi, once calling her just to check in after she had a shoulder operation in the midst of the financial crisis.

“Like how does he even remember I was having surgery? We’re not even friends like that,” she told someone at the time of the call.

Mr. Rajaratnam made it clear to Ms. Chiesi that their trading of corporate secrets should be kept strictly between them. “Radio silence,” he said during one call. During another, Mr. Rajaratnam told her to tell no one about their conversations.

“Not even your little boyfriends, you know?” he said.

The Consultant

Mr. Kumar earned several million dollars a year as a senior executive at McKinsey. He had a grueling work schedule, traveling some 30,000 miles a month, consulting for corporate clients across the globe.

In 2003, Mr. Rajaratnam, who was fast on his way to becoming a billionaire, told his business school classmate that he was underpaid.

“You work hard, travel a lot; people made fortunes while you were away and you deserve more,” he said he was told by Mr. Rajaratnam.

Mr. Kumar would later depict himself as a reluctant felon, initially rejecting Mr. Rajaratnam’s offer. But after they devised an elaborate scheme to hide the payments — opening a Swiss bank account and then transferring funds from it into a Galleon account in the name of Mr. Kumar’s housekeeper — he began moonlighting as a private consultant to Mr. Rajaratnam.

At first, Mr. Rajaratnam asked Mr. Kumar general “big picture” questions about the technology industry but soon became “quite specific,” pressing him for details about individual companies, Mr. Kumar said.

“Mr. Rajaratnam kept asking for that information, and I felt that I owed him something, given how much money he was paying me,” he said.

After Mr. Rajaratnam told Mr. Kumar that his insights were not detailed enough and had little value to him, he suggested an alternative arrangement where they would share trading profits when Mr. Kumar’s tips made money. Mr. Kumar rejected this proposal, preferring a straight-up fee similar to how he was paid for his work at McKinsey.

“I was a consultant at heart,” Mr. Kumar testified. “That seemed like an even bigger crime to me.”

In 2006, Mr. Kumar agreed to another compensation scheme: Mr. Rajaratnam would pay him a year-end bonus based on his annual performance. Mr. Kumar proved his worth that year, providing him with details about secret merger negotiations between Advanced Micro Devices and ATI Technologies.

When the companies announced the deal in July 2006, Mr. Kumar got a call from Mr. Rajaratnam. “That was fantastic,” he said. “We’re all cheering you at the office right now. You’re a star. You’re a hero.”

Mr. Kumar’s tip about the deal helped Mr. Rajaratnam generate about $23 million in profit buying ATI stock, his single largest illegal gain.

In December, Mr. Rajaratnam told Mr. Kumar that Galleon was paying out big year-end bonuses. “I want to give you $1 million,” Mr. Rajaratnam said.

“I almost fell off my chair,” Mr. Kumar testified.

In the video below, DealBook’s Peter Lattman and Azam Ahmed discuss the impact of Raj Rajaratnam’s conviction on 14 counts of securities fraud and conspiracy.

Article source: http://feeds.nytimes.com/click.phdo?i=ffd90ab1d06f09eb2a7f2ea2635a27a6

DealBook: Groupon Taps Google Executive as C.O.O.

6:30 p.m. | Updated

Groupon confirmed late Thursday that it had hired Margo Georgiadis, a vice president of global sales operations at Google, to be its new chief operating officer.

The appointment comes as Groupon, a daily deal site based in Chicago, is said to be nearing a public offering later this year. It spurned a $6 billion bid from Google in December.

Revolving Door
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Ms. Georgiadis, a Chicago resident and former McKinsey Company partner, will replace Robert Solomon, who abruptly announced his resignation last month. She will oversee Groupon’s global sales, marketing and operations.

“Margo is a strong leader with a passion for helping small business owners and consumers,” Andrew Mason, Groupon’s chief executive, said in a statement. “We’re thrilled to have her on our team.”

The appointment was first reported by Crain’s Chicago Business earlier Thursday.

At Google, Ms. Georgiadis was responsible for sales-related technology and operations and the company’s commerce and local sales efforts.

“I’m grateful for all that Margo has done for our team over the past two years,” Nikesh Arora, Google’s chief business officer, said in a statement to DealBook on Thursday. “We will miss her, but we’re also very excited that she’s joining a terrific company and a great partner for Google.”

Article source: http://feeds.nytimes.com/click.phdo?i=1dc2be62742320dc9baac1b354ffd47b