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Justice

The kingpin, titans, informants and the prosecutor Add to ...

The biggest insider-trading trial in decades kicks off this week in New York with a classic cast of characters: a hedge-fund kingpin, a hard-charging prosecutor, two titans of industry, and a host of friends-turned-informants.

The twist is that an unusual number of those roles are being filled by immigrants from South Asia, shining a spotlight on a community that has achieved considerable success in American finance, technology, law, and even politics.

Hedge fund manager Raj Rajaratnam, born in Sri Lanka, is facing charges that he oversaw a web of people trafficking in confidential information, allegations he denies.

Several of those accused of passing him tips have roots in South Asia, including three who have already pleaded guilty. The latest and most startling allegations concern Rajat Gupta, a former director at Goldman Sachs Group Inc. who previously headed McKinsey & Co. and is an iconic figure in the Indian-American community.

Meanwhile, the man leading the government's assault on illegal insider trading is Preet Bharara, the top federal prosecutor in Manhattan. He was born in India, came to the United States as an infant, and went on to earn degrees from Harvard and Columbia universities. Since 2009, he has mounted a major push against insider trading in several overlapping investigations; forty-six people have been charged and 24 have pleaded guilty.

Immigrants from South Asia have risen to prominence in the United States, particularly in business and entrepreneurial circles, despite their comparatively small numbers, estimated at less than 1 per cent of the population. According to a Duke University study, more than 15 per cent of the tech startups in Silicon Valley between 1995 and 2005 were founded by Indian immigrants.

Census data have shown that Indian-Americans earn more and are better-educated than the population at large. Sixty-four per cent hold a bachelor's degree or higher, compared with just 24 per cent for the entire U.S. CEOs of several major firms - including PepsiCo Inc. and Citigroup Inc. - were born in India.

The unfolding insider-trading scandal has provoked dismay and hand-wringing in the community, but it also illustrates a broader truth, evident in everything from the Bernard Madoff scam to smaller swindles. While legitimate business works through networks, so too, at times, can unlawful behaviour.

Vivek Wadhwa, the co-author of the Duke study, notes that connections within the community proved indispensable to its success in Silicon Valley. "How do you take a bunch of foreigners who look different and talk different … and make them so competitive in the most fiercely competitive landscape in the world?" he asked. "The answer is the networks that they formed."

The allegations against Mr. Gupta, revealed last week by the U.S. Securities and Exchange Commission, were a particular shock to a generation of Indian-Americans who looked up to him as one of the very first people from the Indian subcontinent to reach the pinnacle of Corporate America, Mr. Wadhwa said.

A trusted adviser to the biggest companies in the United States, Mr. Gupta headed McKinsey for nine years until 2004 and later joined the boards of Goldman Sachs and Procter & Gamble Co. The SEC alleges that he passed confidential information about both companies to Mr. Rajaratnam, in some cases telephoning the hedge-fund manager just seconds or minutes after his conference calls with other directors ended. Mr. Gupta's lawyer has called the accusations "totally baseless."

Mr. Gupta could be a witness at Mr. Rajaratnam's trial, which begins Tuesday. What's more, Mr. Gupta's involvement with Goldman Sachs might bring an even bigger name into the courtroom to testify: the firm's chief executive officer, Lloyd Blankfein. Neither Goldman nor Mr. Blankfein has been accused of any wrongdoing, but the CEO could describe the financial information discussed at certain board meetings - details that Mr. Gupta is then alleged to have told Mr. Rajaratnam.

One Indian-American who knows Mr. Gupta said the government's allegations against him are a source of distress for some in the community. He recalled a recent conversation with another person in finance who said, "It's one thing to have a fringe element that gets carried away by the money, but to have a pillar of society… it's just awful."

Others take comfort from the role being played by Mr. Bharara, the federal prosecutor, who has employed techniques once reserved for organized crime cases to crack down on insider trading. Using wiretaps, for instance, to pursue such illegal trading amounts to declaring "Defcon 1 toward white-collar crime," says Ravi Batra, a well-known Indian-American lawyer in New York.

Mr. Wadhwa, the Duke researcher, adds that, for younger Indian-Americans who haven't had to battle negative stereotypes like their parents did, the rise and fall of someone like Mr. Gupta doesn't strike a chord. "They're more excited about Kal Penn, the movie star who went to the White House," he says.

Follow on Twitter: @jslaternyc

 

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