All the Advantages of Life Didn’t Stop Roomy Khan From Crossing the Line

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.

Press Plays a Vital Role in Fighting Fraud

INTERVIEW WITH ANITA RAGHAVAN

Investigative journalist, author of The Billionaire's Apprentice and keynote speaker at the 2016 ACFE European Fraud Conference, 20-22 March in Brussels

What role do you think the news media currently plays in combating fraud?
Bringing cases against fraudsters is simply one part of fighting fraud. The other, equally important component, is the role the press plays in making sure these cases get wide visibility. By raising the profile of white-collar fraud cases the media ensures that there is a broader, deterrent effect that extends deep into a community and often well beyond it. For instance, the widespread media coverage of the prosecution of Rajat Gupta, the three-time chairman of consulting firm, McKinsey, and a director at Goldman Sachs and Procter & Gamble, sent a powerful message to directors on corporate boards that trading in confidential information was not only punishable by law but could also lay low revered corporate icons like Gupta. He was sentenced to two years in prison and saw his reputation devastated by the case. Similarly, the media coverage of the arrest of hedge fund manager, Raj Rajaratnam--his photo as he was paraded out of his Manhattan apartment in handcuffs by FBI agents--was televised again and again. It sent shudders through the hedge fund community. Until his prosecution by Manhattan U.S. Attorney Preet Bharara, Rajaratnam was viewed as a giant in the hedge fund world and one of the most successful South Asians in America. Indeed, without the press's deep coverage of these cases, Bharara's vigorous efforts to root out fraud and insider trading may have gone largely unnoticed by the financial and corporate world, the very groups which were targeted by the prosecutions.   

What do you think most contributed to the sharing of information from Rajat Gupta to Raj Rajaratnam? 
A central tenet of Gupta's defense was that he had no reason to give information to Rajaratnam, the founder of Galleon Group, a New York hedge fund, because unlike his McKinsey colleague, Anil Kumar, he received no benefit from breaking the law. No money changed hands between Gupta and Rajaratnam. While that's certainly true, I believe there was a potential benefit that Gupta was looking to receive from his relationship with Rajaratnam. Remember at the time Gupta had stepped down from his perch at McKinsey and he was looking for a second act in life that would allow him to monetize the wealth of contacts he had amassed in his years as a corporate drone and attain the unimaginable riches that someone like Rajaratnam had. It was this possibility of great wealth--not friendship or loyalty--that prompted him to share corporate secrets with Rajaratnam. He knew that what Rajaratnam wanted was information. And if he was to play a pivotal role in Galleon International, a subject which was under discussion between the two men in the summer of 2008, it would be his skills as an information-gatherer, not as a management consultant, that Rajaratnam would value the most. I believe he began feeding Rajaratnam corporate secrets so that Rajaratnam would value him more and look more generously upon his bid to have a bigger role and a larger financial interest in Galleon International.

What do you most hope attendees will take away from your presentation titled, “Trapping the Wolves of Wall Street: How the Feds Cracked America's Biggest Insider Trading Case?”
I hope attendees will come away with a realization of the importance of routine regulatory checks and basic investigative work in cracking open big and sophisticated white-collar crime cases. When the Galleon case exploded into public view, everyone focused on the wiretap recordings that criminal authorities obtained, which provided a chilling minute-by-minute reconstruction of trading on inside information by Rajaratnam and his web of accomplices. But remember the wiretaps would have never happened had it not been for years of digging and shoe-leather investigating by a couple of dogged attorneys at the Securities and Exchange Commission. 

You recently wrote a book about the people behind the headlines. What does your book focus on, and why is this story so important to tell?
The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund sheds light on what motivates good people do bad things. In it, I focus on Gupta, who for most of his career led an exemplary life contributing not just to the corporate sphere but also to the charitable world. He was so respected that he was the only Indian-American invited by presidents of both political parties to dinners at the White House. What prompted a man like him in the seventh decade of his life to put aside his moral compass and cross the line? It is a deeper appreciation of the forces that pushed Gupta to transgress that is important to understanding the mindset of white-collar criminals. 

Read more about Raghavan and the other keynote speakers at this year’s ACFE European Fraud Conference. And don't forget, the last day to register early and save EUR 125 is this Friday, 19 February.