The case brought against the founder of Galleon Management and its technology hedge funds Friday, alleging more than $20 million in illegal profits from insider trading, is more than a shot across the bow of a company named for a ship favored by pirates.
The hedge-fund industry is a big money game that thrives on personal connections, immense compensation, and almost no regulation in any jurisdiction. As SEC enforcement director, Robert Khuzami said of the lead defendant in this case: “He is not a Master of the Universe. Instead, he is a Master of the Rolodex.”
Kumar’s sin is magnified because he comes from the firm famous for its holier-than-thou attitude. McKinsey consultants are imbued with a culture of keeping their clients’ identities and activities confidential.
So this case—which uses wiretaps as if the fund was a Mafia crew—is startling because it could trigger investigations around the world about how Galleon funds made investment decisions and huge gains in China, India, and elsewhere in Asia and Europe. And since Preet Bharara, the newly appointed U.S. attorney in the Southern District of New York, says the investigation is ongoing, it is quite possible that other funds and high-ranking corporate tipsters may be implicated.
This case is even more startling because it alleges that the hedge-fund guys penetrated the heart of the American establishment and corrupted it. If the charges are true, who knows how much of $1 billion or more earned by 52-year-old Raj Rajaratnam, the managing director and founder of Galleon, is tainted?
And if the charges in two criminal complaints are true, Rajaratnam, who initially made his Wall Street name analyzing high-tech investments for a brokerage called Needham & Co., may be the first crook ever caught suborning a senior partner at McKinsey, the consulting firm that claims to have worked for 70 percent of the Fortune 500.
Anil Kumar, the 51-year-old McKinsey director in the spotlight, expressed “shock” at being arrested on conspiracy and securities-fraud charges that could send him to prison for 65 years. Out on a $5 million personal recognizance bond secured by a Santa Clara, California, house he and his wife own, Kumar is a two-decade veteran of McKinsey and is regarded as one of the firm’s leaders in knowledge process outsourcing. That means, among other things, he may tell his clients how to move work offshore or which companies to buy to handle such tasks.
His lawyer, Charles Clayman, tells The Daily Beast: “He was as shocked as everybody that knew him. He is a very decent and very honorable man with a wonderful reputation. Mr. Kumar has faith in the American system of justice, in his lawyers, and that in the end, the truth will prevail, and he will be found not to have been involved in the activity alleged in the complaint.”
In what may turn out to be an understatement if a criminal trial reveals much about the inner workings of McKinsey, Yolande Daeninck, McKinsey’s spokeswoman in North America, said the firm is “very distressed” by Kumar’s arrest. She told The Daily Beast that McKinsey has not yet been contacted by authorities but will co-operate fully with investigators. Kumar, she added, has been “placed on indefinite leave.”
A former McKinsey veteran tells The Daily Beast that to become a director, Kumar must have had dealings with 50 companies or more during his tenure. No doubt, those publicly traded companies will now be wondering what Kumar and his teams might have leaked. I would not be surprised if corporate counsels of McKinsey clients begin re-examining suspicious patterns in trading of their own stocks.
Kumar’s sin is magnified because he comes from the firm famous for its holier-than-thou attitude. McKinsey consultants are imbued with a culture of keeping their clients’ identities and activities confidential. As a result, McKinsey consultants routinely are entrusted with confidential information originating from the absolute top of many companies.
View as Single Page 123 Back to Top October 18, 2009 | 7:24am Facebook | Twitter | | | Emails | print Money, Crime, Business, Wall Street, Mckinsey Quotes, Mckinsey Consultants, Mckinsey Insider Trading, Charles Clayman, Needham & Co., Preet Bharara, Galleon Management. Robert Khuzami, Mckinsey, Hedge Funs, Raj Rajaratnam, Fortune 500, Insider Trading, Corruption, Silicon Valley, Greed (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: Slim45
Just goes to show you: there are no honest people on Wall Street; none of them has any special skills that enable them to "analyze" securities and guide you to the best deal. For the small time investors, they are making educated guesses and getting well compensated for it. Or trading in inside information, and getting real well compensated, on behalf of well-heeled clients.
Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 9:23 am, Oct 18, 2009 mcmchugh99
A lot of the things they've been selling over the last 30 years are more water than real 'assets".
Flag It | Permalink | Reply 12:13 pm, Oct 18, 2009 hodad66
Regulation and prosecution, two things that need to be undertaken in earnest to clean up the financial arena. The future of America is at stake as long as these greedy, scam artists can run rampant.
Flag It | Permalink | Reply 1:48 pm, Oct 19, 2009 Veronicaxy
Is this another sign of Obama in the White House? Thanks to those who lead the sting and worked long boring hours to uncover all of this. It's kind of thing that makes me believe in the American justice system. We need more of signs of tough monitoring.
Flag It | Permalink | Reply 10:51 am, Oct 18, 2009 caveman1957
they should seize all assits untill the investigation is over do not let them hide the money that should be first on the list;;;
Flag It | Permalink | Reply 12:03 pm, Oct 18, 2009 mcmchugh99
In reality, the stuff that's been happening on Wall Street for many years is organized crime, and that's how it should be dealt with.
Flag It | Permalink | Reply 12:12 pm, Oct 18, 2009 blink26
Bankers and "consultants = mostly thieves with degrees.
Flag It | Permalink | Reply 3:27 pm, Oct 18, 2009 reardongalt
Read Richard Ney's 1970 book "The Wall Street Jungle". Needham and Co. is one of the principals. And that was 39 years ago, just to give you an idea of how systemic this is. Richard Ney was one of only two people who were not allowed on Johnny Carson's show. A quote from the lead page of "The Wall Street Jungle": ""The story is told that after he had been deported to Italy, Lucky Luciano granted an interview in which he described a visit to the floor of the New York Stock Exchange. When the operations of floor specialists had been explained to him, he said, 'A terrible thing happened. I realized I'd joined the wrong mob'" (1Ney, 8)."
Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 4:24 pm, Oct 18, 2009 lolalola
That same Richard Ney also played Greer Garson's son in Mrs Miniver, and was married to her for several years.
Flag It | Permalink | Reply 9:27 pm, Oct 18, 2009 thecommissariat
I wonder if this is an isolated "hedge fund related" malfunction, and also wonder whether the authorities have taken so long to put the news into the public domain because they are also building cases against other so-called hedge fund star managers. When Ivan Boesky was prosecuted for insider trading offences in the 1980s, he plea bargained his case by informing on others, served 2 years of a 3.5 year sentence, and was fined $100 million (that's in 1980's dollars!). There is no doubt that he made large profits from insider trading as an arbitrageur, largely for his own account. Hedge funds that use established trading criteria or systems, which means to the layman that they can justify each and every trade in a court of law, seem preferable as long as the trades are not fiction a la Madoff !
Flag It | Permalink | Reply 9:07 am, Oct 19, 2009 $('#c_total span').html('10'); $('#c_total').show();
Thank you. As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.
Please log in to leave comments.
Rush the Race-Baiter
by Conor FriedersdorfInfo
Conor Friedersdorf, a Daily Beast columnist, also writes for The American Scene and The Atlantic Online's ideas blog.
X Close
Don't Call Me a Slut
by Meghan McCainInfo
Meghan McCain is a columnist for The Daily Beast. Originally from Phoenix, she graduated from Columbia University in 2007. She is a New York Times bestselling children's author, previously wrote for Newsweek magazine, and created the Web site mccainblogette.com.
X Close
Why Liberals Kill
by Thaddeus RussellInfo
Thaddeus Russell has taught history, philosophy, and American Studies at Columbia University, Barnard College, Eugene Lang College, and the New School for Social Research. He is the author of Jimmy Hoffa and the Remaking of the American Working Class (Knopf, 2001) and the forthcoming A Renegade History of the United States (Free Press/Simon & Schuster, 2010).
X Close
Report: Afghan Runoff Needed
Says Karzai won only 48 percent of vote.
Iran Backpedals on Nuke Deal
Wants to import fuel, not send out nuclear rods.
GOP Strategy: ‘Delay, Define and Derail’
Acknowledges it can’t block health bill outright.
Gore 'Thrilled' By Obama's Nobel
by Allan Dodds FrankInfo
Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime. He also is President of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.
X Close
Read Full Article »