The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund by Anita Raghavan Read Free Book Online Page A

Rengan’s father declined to invest because he thought the fund was too risky. But Rengan’s older brother Raj put in $1 million, making him the single largest outside investor.
    The new fund raised eyebrows at UBS almost as soon as it began. Its performance seemed too good to be true. Between late July 2006, when the fund started trading, and late August 2006, it doubled its money. Two million dollars ballooned to almost $4 million in a month—a stunning 100 percent return in the span of thirty days, all because of Rengan’s investing “prowess.” Behind the big gains were ten trades—every one of which was a winner. There was another irregularity: after a blockbuster first month, Rengan forced investors to redeem some of their money. Typically, investors like to keep their money in a fund that is beating the street, but in late August Raj Rajaratnam got back half his cash after his brother distributed the funds to investors.
    UBS first noticed the fund’s heady success after it executed a trade on July 26 in the stock of Arris Group, selling “short” $1.4 million worth of shares, the maximum allowable position in the friends and family fund. Short selling, a sign an investor is bearish about a stock, is a method of trading in which an individual sells borrowed shares at one price on the hope of buying back the stock later at a lower price and repaying the loan with the cheaper shares. A profit is made when the borrowed stock is replaced with less expensive shares. For instance, selling one borrowed share today for $20 and replacing it later when the stock is then trading at $19 allows the trader to pocket a $1 profit.
    After saying he wanted to be “long into numbers”—Wall Street–speak for taking an optimistic view about a stock ahead of a company’s earnings—Rengan Rajaratnam switched course and bet heavily against Arris Group in the friends and family fund and the main investment pool. It was a prescient move. On July 27, the company’s stock fell 20 percent after Arris, a communication equipment maker, reported second-quarter earnings that fell short of expectations. “The timing [of Sedna’s trade] was impeccable,” Moon remarked.
    Sedna overall made more than $1.1 million on the Arris trade alone, and Rengan, the only investor in the friends and family fund at the time, personally netted $270,000 overnight. It was such a home run that even his older brother Raj noticed and gave him a backhanded compliment.
    “U r my heroine…u da man…keep the streak alive,” Raj messaged Rengan on July 27, 2006, at 9:21 a.m.
    Raj did not have to say so. They both knew that in the Rajaratnam family he was always the hero and Rengan always the heroine. This made for a fractious relationship. At one point, Rengan worked for Raj, but word was his big brother threw him out of his company, the Galleon Group, after a falling-out. They never stayed mad at each other for long, though. Raj was always protective of his kid brother, much to the astonishment of associates, who considered Rengan arrogant. He had a way of making everyone around him feel small. One time Rengan asked an analyst at Galleon what he should do for his girlfriend for Valentine’s Day.
    Why not cook her dinner, the analyst suggested, adding that women often liked it when men showed their feminine side.
    “I have a South Asian woman to cook dinner,” he snapped back.
    Rengan and Raj spoke several times a day, exchanging investment ideas over the phone. On weekends, Rengan often headed to Greenwich. He enjoyed hanging out with Raj and his family at their spacious McMansion in what’s known as Back Country, Greenwich, an area that once housed sprawling horse farms and big estates. Set well away from the main road, behind a stone wall that stretches around the perimeter of the property, the Rajaratnam estate, with a long driveway leading up to the main house, was secluded just like a fly-below-the-radar hedge fund manager would want.
    Unlike his