By A Special Correspondent Courtesy The Island

July 24, 2016, 9:15 pm
Interest in the Sri Lankan born billionaire stockbroker Raj Rajaratnam who fell from grace in 2009 has been rekindled following the appointment of one of his former employees Indrajith Coomaraswamy as the Governor of the Central Bank. In this three part series of articles, The Island will summarise the highlights of the Rajaratnam trial in the District Court of Southern New York – a sensational insider trading case that reverberated around the world. The article contains verbatim extracts from the court records.

Raj Rajaratnam was born in Sri Lanka in 1957, the second oldest of five children and the son of a business executive and homemaker. Although Mr. Rajaratnam’s family lived comfortably by Sri Lankan standards, his parents taught him the value of hard work, and instilled in him a sense of responsibility for helping those less fortunate. At age eleven, Mr. Rajaratnam went to India to attend school, and when he was fourteen, he went to a boarding school in England. He attended college at the University of Sussex in England, graduating in 1980 with a Bachelor of Science in engineering. Even as a college student, Mr. Rajaratnam impressed his classmates not only with his intellectual brilliance, but with his openness and generosity.

As one college friend recalls: What endeared me to him during our student years was his willingness to share his knowledge. He would actually sit by my side till the wee hours of the morning to explain topics I had difficulties with. It won’t be an exaggeration to say that I am not the only one who benefitted from his ‘generosity’ of imparting knowledge. There were fellow students who would at an appointed time convene at the cafeteria or in the library to listen to his crisp summations of a particularly difficult topic. Even then, he had a natural inclination toward teaching and leading – an extraordinary trait that has made him outstanding amongst his peers.

Mr. Rajaratnam came to the United States in 1980. From 1981-83 he attended graduate school at the Wharton School of the University of Pennsylvania. He graduated from Wharton near the top of his class with a Masters in Business Administration in 1983. After earning his MBA, Mr. Rajaratnam returned to his native Sri Lanka. His plan was to work for Chase Manhattan Bank there, but 1983 was a difficult and dangerous time for the Tamil minority in Sri Lanka. In July of that year, over 2,000 Tamils died as a result of violence directed against them by the Sinhalese majority. Because of this violence, Mr. Rajaratnam decided to leave Sri Lanka and return to the United States, where he got his start at Chase Manhattan Bank in New York. Due to the on-going civil war in Sri Lanka, his parents, brothers, and sisters later emigrated to the United States as well. All became United States citizens.

After completing the Chase Manhattan credit training program, Mr. Rajaratnam worked as an Assistant Treasurer and lending officer in the technology group at Chase. In 1985 he moved to Needham & Company, an investment bank in New York. Mr. Rajaratnam’s first job at Needham was as an analyst, and because of his engineering background, he developed a particular expertise in analyzing technology companies. For the rest of his career, Mr. Rajaratnam believed that it was important for technology sector analysts to be educated in science and engineering, and often said that it was easier to teach an engineer how to pick stocks than it was to teach engineering to a stock trader. Mr. Rajaratnam’s talents as an analyst were noticed, and within a few years, he was promoted to Needham’s Director of Research. In 1992, he started a hedge fund at Needham and for the first time began managing clients’ money.

Mr. Rajaratnam took his fiduciary responsibility as the caretaker of his investors’ money very seriously. He understood that his investors were entrusting him not only with their money, but with their families’ future financial security, and Mr. Rajaratnam worked diligently to identify promising opportunities for his investors. His efforts were successful, and at the age of thirty five, he was promoted to Needham’s President and Chief Operating Officer. Mr. Rajaratnam left Needham at the end of 1996, and in January 1997 he formed Galleon, his own hedge fund business in New York. Mr. Rajaratnam built Galleon from the ground up, based on the fundamental philosophy of producing the best possible returns to investors by coupling fundamental research with active, event-driven trading. He opened an office with just a few people and, after much hard work, his dream became a reality.

Mr. Rajaratnam has been married since 1988. His wife Asha formerly worked in the textile industry and now volunteers her time at non-profit organizations such as the South Asian Youth Action organization in New York, where she serves on the board of directors. They have three children, ages 14-19, who live with them in New York. Mr. Rajaratnam also cares for his elderly parents, who live with him. As described in the letters that the Court has received, Mr. Rajaratnam has a very close-knit family. Despite the demands on his time from running a large company, his daily routine was to eat breakfast with his wife and children every morning and return home in time to eat dinner with them almost every night. As his wife wrote in her letter: “Raj is a family man. His three children know this about their father and many times run home to catch up with Dad to hear him make a joke or just talk about his day. He regularly declined life’s countless events so he could be home with the family.”

His children are very close to him and have been devastated by the charges brought against their father, the outcome of the trial, and the thought of possibly losing him from their lives. Mr. Rajaratnam and his wife instilled in their children a sense of obligation to help the disadvantaged – an obligation that Mr. Rajaratnam himself has more than fulfilled. In addition to providing for his immediate family and parents, Mr. Rajaratnam provides for many others in his extended family. For example, when other family members became refugees from Sri Lanka, he purchased homes for them in Canada and England, and helped them when medical expenses or other emergencies struck.

As the Court heard at trial, Galleon grew into a large, successful hedge fund, employing over 150 people with an asset size that grew to approximately $6.5 billion and investors that included state pension funds, private retirement plans, and university endowments, as well as individuals. Many of Galleon’s employees were expert stock analysts holding the kinds of advanced science and engineering degrees that Mr. Rajaratnam believed to be essential to effective analysis, and Galleon developed a well-deserved reputation as one of Wall Street’s finest firms for fundamental research.

Over time, Galleon’s focus on the technology sector expanded to include funds that concentrated on health care, energy, consumer, and financial companies, each employing its own complement of expert industry analysts, professional traders, and portfolio managers. Many of the letters the Court has received speak of the intellectual rigor and transparency that Mr. Rajaratnam demanded, and which were the hallmarks of Galleon’s research process.

Former Galleon employee Angela Dalton writes: Raj was known as an investor who thrived on the research process …. He epitomized the Socratic method – analysts would start the day by making sure they had all of the information they could possibly gather on their stocks from the press and the research analysts at various investment banks on the Street.

They would then head into the morning meeting with their thick black binders of models and research, which Raj insisted they keep given they needed to know all of the numbers to have a proper conversation or to make a pitch on whether to buy or sell a particular company’s stock. And while he was great at discerning the big picture as analysts were speaking in the morning meeting, what he really loved to do was dig into the details . . .

And if the morning meeting wasn’t enough stock discussion, he also held daily mid-morning meetings in his office with smaller sector teams in which he would dig into their models and ask them for fresh ideas. He approached people with a warm smile and was known to say constantly, “I want total transparency around here.” . . . He would encourage people, “Please just walk into my office!” which I did frequently. If I went into his office with an idea about the business, he would listen intently and was always very open and willing to discuss any new idea.

Mr. Rajaratnam was the Managing General Partner of Galleon Management, L.P., the investment advisor for the individual funds which together composed the Galleon Group. He was also a Portfolio Manager for the Technology Fund and managed investments in the Diversified Fund. In his position at Galleon, Mr. Rajaratnam developed an excellent reputation in the business community, not only as a savvy investor but as a brilliant businessman. But even more remarkable was how lightly Mr. Rajaratnam wore his success. This Court has received letter upon letter attesting to Mr. Rajaratnam’s humility, openness, and utter lack of pretense.

As Rick Schutte, the former president of Galleon, wrote in his letter to the Court: People across Wall Street and across Main Street had an incredible respect and admiration for Raj. They wanted to know him and they wanted others to know they knew him. This ranged from company executives seeking his insights as well as portfolio managers and their analysts at other funds. Investors large and small sought his perspective. I won’t mention any by name, but Raj’s circle of friends and colleagues was deep and wide, yet he never bragged about the people he knew. Despite all his accomplishments, he’s a humble and approachable person, never boasting about his wealth nor his accomplishments. He had an open door policy at Galleon and many people took advantage of it. He was always willing to listen to a viewpoint, always gave a balanced reply, and when he disagreed, he never berated anyone.

As the leader of Galleon, Mr. Rajaratnam continued to demonstrate the commitment to his investors that he had first shown at Needham, and he instilled the same commitment in Galleon’s employees. For example, during the financial crisis in 2008, when many hedge funds were restricting withdrawals in order to prevent a ‘run on the banks’ by investors, Mr. Rajaratnam declared that Galleon’s investors would remain in charge of their own money and that no restrictions on withdrawals or redemptions would be imposed, even if it meant that Galleon would cease to exist. Galleon employee, Lukasz Sito, offers this perspective on Mr. Rajaratnam’s overriding concern for Galleon’s investors: Mr. Rajaratnam’s concern for his employees was only superseded by his fiduciary duty and responsibility to his investors.

In late 2008, at the height of the financial crisis when most funds were implementing ‘gates’ to prohibit their investors from withdrawing funds, Mr. Rajaratnam gathered the entire firm and informed everyone that Galleon will not be putting any gates in place. I remember his exact words being: “All of us here have a fiduciary duty to our investors. As such, we will not be implementing any gates. It is our investors’ money, and they have the right to do whatever they want with it, even if it means withdrawing all funds from Galleon and destroying our firm.” As it turned out, Galleon survived the financial crisis, but it did not survive the charges in this case, which forced Mr. Rajaratnam to close the fund in 2009.

As a member of an ethnic minority group – both in his adopted home in the United States and in his native Sri Lanka – Mr. Rajaratnam knew about the special challenges facing outsiders and underdogs, and he used his success and influence to help others break into the financial industry. The letter from Susan T. describes this well: Raj gave me my first real opportunity to work as a sales trader on Wall Street. Despite having attained an MBA and been previously employed at large accounting and securities firms, as a woman and as a minority, I was not taken seriously by anyone else on Wall Street. Raj gave me the chance to prove myself in the industry and break into a very male-dominated field. I did well and I owe it all to Raj.

Not only did Raj give me the opportunity for a successful career, but at one point in time he also provided me with gratis, extended New York City housing until I found affordable accommodation. Not once did he ever ask for or expect anything in return. He simply wanted to see a hard working, ambitious woman get ahead in life. Similarly, when Galleon employees left the company to start their own investment funds, Mr. Rajaratnam’s practice was to support them by investing some of his personal assets with them.

The District Court of the Southern District of New York also commented on Rajaratnam’s personal kindness and his commitment to philanthropy. The court took note of a letter written by his housekeeper who stated that Rajaratnam had given her daughter an opportunity to gain insight into the world of Wall Street through an internship and has even helped fund her college tuition. A letter from the doorman of Rajaratnam’s apartment building described how Rajaratnam helped him when he learned that the doorman was suffering from cancer. For the sake of brevity, the testimony that the court received about Rajaratnam’s numerous donations to charity will be summarised as follows:

Rajaratnam was in Sri Lanka when the 2004 Tsunami struck. He immediately donated $5 million to build new homes for those who had lost theirs. Mr. H.Esufally of Sri Lanka stated that this included building 300 flats in a Muslim community in the East of the country and that to this day those people pray for him. Mr. Rajaratnam has been a long-standing supporter of the Harlem Children’s Zone (HCZ) and over the years had donated a total of $10.4 million to the HCZ and did so, as Mr. Geoffery Canada the President of the charity states, ‘without ever seeking any public recognition for his generosity’. Rajaratnam had also seeded two charity funds of $5 million each in Sri Lanka in an effort to help improve the local economy after years of civil war and he invested $1.5 million in a private hospital company there, not because of any expected return but because the country lacked quality medical care.

The letter received from Dr. M. Kazmi describes a $10 million donation he made to Asia Care, an organization that he helped build to support the healthcare needs of the poor in Pakistan. The Court observed that over the years, Rajaratnam’s donations to charity have totalled at least 45 million.