Free The Billionaire's Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund by Anita Raghavan

the SEC and has never divulged information specific to the company. He has not been charged in connection with the Sedna case.) To build an insider trading case against Rengan, the agency still had to show actual communication between him and Dhar about earnings, which proved harder than expected.
    The second curious trade that stood out to Michaelson was a big bullish bet that the Sedna friends and family fund made in Advanced Micro Devices (AMD) call options—a bet that a company’s stock price would rise. On July 31, 2006, Rengan’s big brother Raj Rajaratnam wired his $1 million investment into the friends and family fund. Rengan deployed that money and all his capital and winnings from his trade before Arris’s earnings into AMD call options. It was the only position in the fund, and it was a bold, gutsy gamble for a hedge fund manager with an ordinary track record.
    To Michaelson it seemed like a sure-bet trade, and in this case, it looked like the information was flowing from Raj to his kid brother Rengan. Michaelson was convinced there was no way Raj would give Rengan $1 million to pour into one stock if he was not certain that the investment would be a winner. Rengan also would not risk his brother’s money unless he was sure the trade was going to be a slam dunk.
    That July 31 evening, at 8:32, Bloomberg News reported that Dell would start selling notebook computers with AMD processor chips as early as October. It didn’t go unnoticed at the SEC that Rengan’s order to buy AMD options was made just hours before the article hit the newswires. During the evening, the Bloomberg article was followed by a flurry of others. Shortly after midnight on the morning of August 1, the Wall Street Journal , citing Bloomberg, mentioned that IBM was “increasing its use of semiconductors” from AMD.
    When the Rajaratnam brothers woke up the next morning, they were pleased with themselves. Sometimes their trades—no matter how well constructed and planned—had a way of going awry. Whenever that happened, obscenities flew between the two—“fuckers…screwing my picture,” Rajaratnam instant-messaged his brother Rengan once when an investment bank issued a research report that conflicted with his take on the company. “Sucks,” replied Rengan.
    But, on the morning of August 1, 2006, the Rajaratnam brothers took to high-fiving each other electronically.
    “see the ibm/amd news; on wsj,” Raj instant-messaged Rengan at 8:27 a.m.
    “very nice; also did you see the digitimes? On Dell and amd?” Rengan replied.
    “On Dell…yes,” Raj wrote back.
    A little over an hour later, Rengan wanted some advice from his brother on AMD.
    “are you going to hold the amd?” Rengan instant-messaged Raj.
    “y thru the 13th,” replied Raj, using the shorthand “y” for “yes.”
    “cool, will do the same,” said Rengan.
    The reference to the thirteenth puzzled Michaelson; August 13 was a Sunday and it was rare for companies to make corporate announcements on a Sunday, aside from negative news or to unveil a breaking merger or acquisition. Since the bet that Sedna made on AMD was a bullish one, it looked like the news the Rajaratnam brothers expected was positive. In any case, the instant-message exchange buttressed a hunch that Michaelson had had all along. Unlike the Arris earnings intelligence, the information on AMD was flowing from Raj to Rengan.
    Two weeks after the IM banter, Dell released its earnings and said it would unveil desktop computers with AMD processors. That same day, August 17, Sedna’s friends and family fund sold the options for a gain of $2.8 million. At 11:34 a.m., Matt Read was back with his usual cyberbanter. He instant-messaged his cousin Bill Lyons at Sedna.
    “AMD,” Read said.
    “story to tell you man; this weekend,” Lyons said.
    “Birdie,” Read countered.
    “Nothing big; talk on weekend,” Lyons replied.
    “dude you always do that,” Read said.
    On October 19, 2006, the SEC issued a