FROM THE ACFE GLOBAL FRAUD CONFERENCE
Dick Carozza, CFE
Editor, Fraud Magazine
One question from prosperous hedge-fund trader Raj Rajaratnam changed Roomy Khan’s life: “How’s business?”
In 1997, Khan — who held graduate degrees in engineering and physics — was working in marketing at Intel in Silicon Valley. However, she told attendees at the closing session* of the 27th Annual ACFE Global Fraud Conference last week, she really wanted to become a high-tech stocks analyst on Wall Street, and she saw Rajaratnam — her mentor — as her ticket.
So she called Rajaratnam who said that he was establishing Galleon Group — a hedge-fund firm in New York — and he was looking for information. Khan said she didn’t have access to any Intel financial data. “But I had marketing data on the top customers for Intel. I used this small piece of information combined with the guidance the company had given him in a previous conference call, and I made a mock Intel income statement for the upcoming statement,” she said.
“I started sharing this information with Raj,” she said “It seemed wrong but harmless [because] this data on the top customer list changed on a daily basis,” Khan said. “Raj wanted this information and I wanted Wall Street.” However, Intel soon discovered that she was passing information to Rajaratnam and prosecuted. She had to pay a large fine, and was placed on house arrest for a time. Rajaratnam wasn’t touched.
Despite her brush with the law, Khan eventually landed a job at Galleon in Silicon Valley where she was introduced to the serious world of insider trading. She said she was careful to hide her fraud, but years later — after she had begun her own hedge-fund firm — the FBI eventually detected one of her illegal tips and pressured her into becoming a secret informant. Her testimony eventually helped bring down Rajaratnam — who was sentenced to 11 years in prison in 2011— and several of his associates.
When Khan was a young woman her father wanted her “to break the mold of a typical Indian woman, which was to be a housewife,” she said. He paid for her tuition to attend Columbia University for her Master’s in Electrical and Electronics Engineering. “‘That’s your dowry, your down payment for your future,’” she said he told her.
But all the advantages of a rich family life didn’t prevent her from succumbing to an ingrown fraud culture in hedge-fund trading where Rajaratnam expected her to pursue “The Edge”— his euphemism for insider trading.
She said fellow traders rationalized their actions and complained about the unrealistic trading rules. “But disagreeing with the law doesn’t give us the right to break it,” Roomy said.
Khan once lived the big life — a $15 million home, luxury cars, diamonds, designer clothes, expensive artwork. “Excessive spending. The more I spent, the harder I worked,” she said. But most of that is gone now. She speaks to university students, business groups and at conferences to share the insidious nature of insider trading and to warn others that they too can slip into the fraud culture.
“As a girl who grew up in India and came to the U.S. — I went to some of the top schools, worked for some of the best corporations, caught all the breaks that I wanted. … But I am responsible [for my fraud] and no one else,” she said. “The culpability is completely mine. I should have known better. Looking forward, I hope I can now be part of the solution.”
*The ACFE does not pay convicted fraudsters to speak.
Find more coverage from the 27th Annual ACFE Global Fraud Conference at FraudConferenceNews.com.