we will likely see a decrease in the practice of insider trading

As a result of the Galleon case and the conviction of Rajat Gupta at the end of 2012, we see a blemish on the Indian American community on a national scale for the first time. But on the bright side, the Indian American story of aspiration and high attainment is far from over. Anita Raghavan details the story of the Galleon case and its impact on Wall Street and the Indian American community in her book, The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund, to be released on June 4. Gateway House’s Advait Praturi spoke to Raghavan who is currently based in London.

Q: Indian-Americans have established themselves as a talented and productive community on Wall Street. In light of the conviction of Rajat Gupta, has the perception of them within the financial services industry changed?

In Wall Street and the financial community, yes – there is a feeling that Indians have been unfairly singled out. Most of the people on Wall Street are affected by these events in one way or the other. Many have prospered in America because of the reputations of people like Rajat Gupta so his fall casts a long shadow.

The significance of this case is that for the first time, we see a blemish on a national scale on the Indian-American community. If you look at the Pew Research Center’s report on Asian-Americans that came out last year, Indian-Americans lead all Asian minority groups by a significant margin in terms of income and education. Historically, this diaspora has excelled both academically and professionally and members of the community have made their way to the highest echelons of American society. The Indian-American story has been sort of a “magical tale”, and this marks the first time that South Asian Americans have been indicted in what has come to be a very high profile case.

Q: Has this incident impacted the culture of insider trading on Wall Street?

The short answer is yes. In the late 1980s, the Manhattan U.S. Attorney’s office brought a number of high profile insider trading cases against the prominent financiers of the time. And as a result, for a while in the 1990s, insider trading did disappear as a common feature on the landscape of Wall Street.

Similarly, in the last few years, there have been several high profile cases of insider trading and this has had and will continue to have a chilling effect on members of the entire financial community. Certainly in the near and medium term, we will likely see a decrease in the practice of insider trading.

But memories are short so we could easily see a return of high profile insider trading cases in 10 years.

Q: How does this case compare with other high profile cases? What about the investment bankers involved in selling junk financial packages during the sub-prime lending crisis?

The prevailing culture in the U.S. is that everyone from employees to institutions are expected to deliver results. The Securities and Exchange Commission and other law enforcers are no exception. After the financial crisis, there was a huge expectation on these regulatory bodies to root out malpractice and restore discipline on Wall Street.

Insider trading cases like the Galleon case are easier cases to prosecute and win than mortgage mis-selling cases against investment bank CEOs. How would you tie a CEO of a big bank to the lowly broker who peddles the bad mortgages? To convict the chief executives of banks involved in selling shoddy mortgages, there are so many layers to penetrate – an effort which will cost time and money. There’s also no guarantee that these efforts will result in convictions.

Prosecutors want winnable cases and it’s easier to build up an insider trading case, where there are hours of recordings of non public information being passed among a group of people or incriminating circumstantial evidence than it is to construct a complex mortgage mis-selling case that would implicate the truly big fish – the bank CEOs behind the sub-prime lending crisis.

Q: How do incidents like these influence public perception of Indians – especially as their political, business and public aspirations in the U.S. grow?

One can take a pessimistic view of what happened – one can say the Indian American community has hit a barrier and that incidents like this will hinder the community’s growth. After the New York Times adaptation of my new book, `The Billionaire’s Apprentice’ came out, I was stunned by many Indian-Americans who wrote to me arguing that this is to be expected from Indian leaders and businessmen especially given the scandals happening in India right now.

I don’t agree with them but I thought the diversity of views underscored the strength of the community. No longer does it speak with one voice. It is a vibrant mix of generations with different views all determined to be heard. So yes, while this may seem like a blemish on the ‘magical’ Indian American story, that story is far from over and the future holds new twists and turns to it.

Anita Raghavan is the author of “The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund,” to be published by Business Plus on June 4.

This interview was exclusively conducted for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

For further reading on the subject, take a look at Manjeet Kripalani and Ambassador Neelam Deo’s article, “Rajat Gupta: Arresting the Rise of Indian CEOs”, originally published in Newsweek on Nov. 9^th. Manjeet and Neelam are co-founders of Gateway House: Indian Council on Global Relations.

For interview requests with the author, or for permission to republish, please contact outreach@gatewayhouse.in.