good ship galleon

How Wall Street Name-Dropping Doomed Raj Rajaratnam

Recently over drinks, a new acquaintance who once worked for Goldman Sachs revealed, unprompted, his role as a footnote in an SEC investigation. He said he’d been a member of the bank’s structured finance team — the one hauled before a congressional committee to defend Goldman’s notorious Abacus deal, a toxic CDO it had marketed to clients without informing them it had essentially been rigged to explode.

“Fabulous Fab, you remember him?” the ex-Goldmanite volunteered. “I know those guys! I worked with them!”

Such tin-eared braggadocio can sound frankly pathological, the equivalent of telling a stranger, “I played Winged Foot with Madoff! Great guy!” But the financial world’s culture of name-dropping is so ingrained that it becomes hard not to do. It’s the reason entry-level bankers will often claim to be “pretty tight” with executives they met once at a benefit dinner: On Wall Street, who’s on your BBM list is in some ways as important as what’s in your bank account. Connections help you make more money and get a bigger job, but they also have value unto themselves, as social currency. So you flaunt them, a lot — even when the government is listening in.

The trial that led to the conviction of Galleon Group’s Raj Rajaratnam for insider trading revealed how the hedge-fund billionaire amassed inside information on companies like Clearwire, Akamai, and AMD by feverishly working his contacts. But the taped phone conversations that were the centerpiece of the government’s case also showed him to be a prolix practitioner of the “I know a guy … ” move. He dropped name after name in the act of exchanging illicit information — not because he had to, but because it allowed him to peacock his Rolodex. Rajaratnam didn’t just relay to a colleague that he’d heard Goldman’s share price was set to drop. He specified his source: a member of Goldman’s board, later revealed to be his friend Rajat K. Gupta.

It’s not a crime, of course, to be well-connected. At the same time, emphasizing how well-connected you are while committing insider trading is pretty dumb. Rajaratnam did in fact know many high-ranking executives, but his zeal for reminding people of that was his downfall. Investigators had the names of his tipsters because he gave them out like Halloween candy.

Rajaratnam, who at one point managed $7 billion and was worth $1.8 billion himself, made just $68 million from his ill-gotten tips. Why would he risk so much for what amounts to chump change? The Post, speaking for many, hazarded a guess: “SUNK BY GREED” blared its cover story. But it was never only about the money. For Rajaratnam, the biggest benefit of getting, and coolly passing on, tips from high-placed insiders was that it demonstrated his clout and allowed him to live the promise of his given name: Raj, the Hindi word for “King.”

Given how many such desires for grandeur exist on Wall Street, investigators looking for further schemes might skip wiretapping and go for a more rudimentary technique: Just invite suspects out for drinks, ask them what they’ve been up to lately, and let the names flow.

How Wall Street Name-Dropping Doomed Raj Rajaratnam