By ANJALI CORDEIRO And ELLEN BYRON
Procter & Gamble Co. plans to launch an online store that will sell key brands, aiming to study consumer buying habits as it counters moves by traditional retailers, which have reduced the variety of brands they carry.
P&G spokeswoman Tressie Long said the company sees the new online store as more of a "learning lab," where it can study consumers' online buying habits, rather than as a direct source of sales growth. P&G, which already sells its products online through the Web sites of such retailers as Wal-Mart Stores Inc., says it will share what it learns with retailers that carry its brands.
P&G's new "eStore" will start as a pilot using 5,000 consumers in coming days. The site will carry only P&G products but will be owned and operated by PFSweb, an e-commerce service provider. Pricing on the site will be at the discretion of PFSweb, P&G says.
Not every P&G product will be available via the site initially, although big brands including Tide, Pampers and Olay will be sold there. The new Web site, at pgestore.com, is not yet publicly accessible but will be up for use beyond the pilot program in the spring. There will be a flat $5 shipping fee for all orders.
Procter & Gamble has increasingly been looking for new avenues of growth as consumers have cut back. In recent months the company has said it will push to sell more of its products online,
Despite P&G's push into the online medium, sales at traditional retailers will remain key to its business. P&G gets about half a billion dollars in online sales, a fraction of its roughly $79 billion in annual sales. Researcher Nielsen estimates online sales of consumer packaged goods including food, beverage, health and beauty aids and household cleaners increased 20% to 25% between 2004 and 2008, hitting roughly $10 billion in 2008.
In separate news, Procter & Gamble plans to end its fragrance licensing agreement with Valentino Fashion Group, according to a person familiar with the matter. Puig Beauty & Fashion Group SL, the Spanish fashion and fragrance company, is expected to take over the license from P&G in February 2011, this person said.
P&G produces a number of fragrances for Valentino, which is owned by U.K. based private-equity fund Permira. But sales never reached the heights of P&G's other fragrance licenses, including those with Gucci and Dolce & Gabbana, which last year launched a makeup line.
A spokeswoman from P&G declined to comment. A spokesman from Puig couldn't be immediately reached for comment.
P&G wants to weed out underperforming brands to focus on its more competitive products. The company has been moving into luxury beauty products, including the expansion of skin care line SK-II and its acquisition of high-end men's grooming lines like The Art of Shaving.
Sunday, January 17, 2010
Saturday, January 9, 2010
Banks vs. Credit Unions
Would a credit union be a better alternative for you? The Early Show's financial contributor Vera Gibbons compares banks and credit unions.
Broadcast TV in 2010: Death or Rebirth?
By Josef Adalian
Published: January 04, 2010
The nation's TV critics just spent the last two weeks raving about the small screen's creative triumphs over the past decade, with more than a few heralding a new golden age for the medium.
So why do the folks who run the industry -- particularly those who work at the big networks -- still feel so queasy heading into the '10s?
The short answer: While cable's renaissance means there are more networks with more "hit" shows than ever before, the windfall profits such success once guaranteed for the Big Four are harder than ever to reach.
The Age of Monster Hits like "Friends" and "Seinfeld" and "Law & Order" -- and the massive profits they once generated -- is over. Midrange success stories are the new 40 share. (See accompanying story about the movie industry: "Hollywood Cuts, Retools and Looks to the Future.")
No, network TV isn't on its deathbed, despite the rantings of some doomsayers. But the industry is still in for several more years of transition as executives look to radically remake the business model for broadcast TV.
Signs of change are everywhere:
-- News Corp.'s Chase Carey decision to go to the mat with Time Warner Cable over the New Year's holiday wasn't about pride. Networks like Fox simply can't thrive on advertising revenue alone anymore, particularly with some projections showing Madison Avenue will continue to cut back on network ad buys even as the overall economy improves.
-- Much of the pre-announcement hype over Apple's so-called "iSlate" has focused on its potential to bolster print. But the computer giant also has been talking to multiple networks about a monthly subscription service for TV shows. It's not hard to see TV programming being a big part of iSlate. Likewise, it's possible networks could use the internet to experiment with models where subscribers get first crack at big events -- anything to replace the dollars lost from shrinking syndication monies.
-- Despite the flak NBC has taken over its Jay Leno experiment, the Peacock may actually be the canary in the coal mine for broadcasters. The fact is, networks have no choice but to look for ways to reduce the number of hours they devote each week to high-cost scripted programming. Even reality TV -- once thought to be a panacea for the cost problems of networks -- has gotten more expensive and has ended up with the same rough success-to-failure ratio as comedy and drama. Don't be surprised to see more repeats in regular timeslots as networks finally concede that they can't afford 20 hours-plus of first-run fare every week.
-- Entire dayparts are disappearing or radically evolving. We've already seen the networks get out of the kids business. Daytime could be next, with two long-running soaps toast and more casualties highly likely soon.
-- The local-stations business, once a source of steady revenue for conglomerates such as NBC Universal and CBS, is now a drain on profits, thanks to a near-complete collapse of premium local advertising (there's a reason many stations now air informercials in the middle of the day, rather than just late at night).
There’s renewed talk the whole network-local affiliate relationship could be on the brink of crumbling as broadcasters seriously consider something they've mulled for years: transforming into cable networks.
And yet, while times are clearly still tough, they're also filled with opportunity. And as stomach-churning as 2010 promises to be for the TV business, indications are that broadcasters are -- ever so slowly -- starting to figure out how to adapt to the reshaped landscape of the business.
Consider: Lost in all the drama of "Will Fox pull the plug on Time Warner?" is the fact that nobody seemed to think News Corp. was crazy for demanding serious compensation for its signal.
At the start of the last decade, cable companies scoffed at the idea that they'd ever pay cash for free over-the-air TV. CBS broke ground with a few deals a while back, but they didn't produce serious money.
While Time Warner and Fox aren't yet revealing the terms of their pact, it's clear Fox got a record sum from a cable operator for its programming. Broadcasters' decades of dreaming about matching cable's dual revenue stream may soon be over -- and while it won't make up for dwindling syndication and ad revenues, it will help. A lot.
Likewise, major media companies' push to get paid for their content could yet result in another new revenue stream for broadcasters. The talks with Apple hint at this. Hulu's declaration that it may yet charge for some content is another sign of digital pennies slowly morphing into dimes, quarters and maybe even dollars.
The decline of the traditional 100-episodes-to-syndication-nirvana also may prove liberating to network programmers, and not so catastrophic for broadcast bean counters.
After all, freed from the burden of trying to produce as many episodes as quickly as possible in order to get to the back end ASAP, broadcasters could start to experiment more with the idea of limited-order series. Or shortened episode counts.
That could lead to even better shows. Maybe big talent that would never commit to the drudgery of virtual nonstop production for seven years -- the reality of a hit drama or comedy in the past -- might consider signing on for a three-year gig in which only 13 episodes are produced every 12 months.
It's a model that has allowed cable networks from FX to HBO to land major names who'd never do a network show.
Then there's the promise of technological revolution. Just as James Cameron's "Avatar" offers the hope of keeping moviegoing an in-theater experience, TV soon could get a 3D boost as well.
The big buzz at this week's Consumer Electronics Show is all about 3D TV, which is months -- not years -- away from becoming a reality. It won't be cheap, but there are thousands of hours of programming that could suddenly become a lot more valuable if converted to 3D. Bottom line: It's another source of potential profits to a business that needs as many as it can find.
As the Awful Aughts fade into memory, it would be nice to be able to predict smooth sailing ahead for broadcasters. It would also be naive.
But that doesn't mean there's not reason to hope that, like a TV icon from a simpler time, the networks might just make it after all.
Published: January 04, 2010
The nation's TV critics just spent the last two weeks raving about the small screen's creative triumphs over the past decade, with more than a few heralding a new golden age for the medium.
So why do the folks who run the industry -- particularly those who work at the big networks -- still feel so queasy heading into the '10s?
The short answer: While cable's renaissance means there are more networks with more "hit" shows than ever before, the windfall profits such success once guaranteed for the Big Four are harder than ever to reach.
The Age of Monster Hits like "Friends" and "Seinfeld" and "Law & Order" -- and the massive profits they once generated -- is over. Midrange success stories are the new 40 share. (See accompanying story about the movie industry: "Hollywood Cuts, Retools and Looks to the Future.")
No, network TV isn't on its deathbed, despite the rantings of some doomsayers. But the industry is still in for several more years of transition as executives look to radically remake the business model for broadcast TV.
Signs of change are everywhere:
-- News Corp.'s Chase Carey decision to go to the mat with Time Warner Cable over the New Year's holiday wasn't about pride. Networks like Fox simply can't thrive on advertising revenue alone anymore, particularly with some projections showing Madison Avenue will continue to cut back on network ad buys even as the overall economy improves.
-- Much of the pre-announcement hype over Apple's so-called "iSlate" has focused on its potential to bolster print. But the computer giant also has been talking to multiple networks about a monthly subscription service for TV shows. It's not hard to see TV programming being a big part of iSlate. Likewise, it's possible networks could use the internet to experiment with models where subscribers get first crack at big events -- anything to replace the dollars lost from shrinking syndication monies.
-- Despite the flak NBC has taken over its Jay Leno experiment, the Peacock may actually be the canary in the coal mine for broadcasters. The fact is, networks have no choice but to look for ways to reduce the number of hours they devote each week to high-cost scripted programming. Even reality TV -- once thought to be a panacea for the cost problems of networks -- has gotten more expensive and has ended up with the same rough success-to-failure ratio as comedy and drama. Don't be surprised to see more repeats in regular timeslots as networks finally concede that they can't afford 20 hours-plus of first-run fare every week.
-- Entire dayparts are disappearing or radically evolving. We've already seen the networks get out of the kids business. Daytime could be next, with two long-running soaps toast and more casualties highly likely soon.
-- The local-stations business, once a source of steady revenue for conglomerates such as NBC Universal and CBS, is now a drain on profits, thanks to a near-complete collapse of premium local advertising (there's a reason many stations now air informercials in the middle of the day, rather than just late at night).
There’s renewed talk the whole network-local affiliate relationship could be on the brink of crumbling as broadcasters seriously consider something they've mulled for years: transforming into cable networks.
And yet, while times are clearly still tough, they're also filled with opportunity. And as stomach-churning as 2010 promises to be for the TV business, indications are that broadcasters are -- ever so slowly -- starting to figure out how to adapt to the reshaped landscape of the business.
Consider: Lost in all the drama of "Will Fox pull the plug on Time Warner?" is the fact that nobody seemed to think News Corp. was crazy for demanding serious compensation for its signal.
At the start of the last decade, cable companies scoffed at the idea that they'd ever pay cash for free over-the-air TV. CBS broke ground with a few deals a while back, but they didn't produce serious money.
While Time Warner and Fox aren't yet revealing the terms of their pact, it's clear Fox got a record sum from a cable operator for its programming. Broadcasters' decades of dreaming about matching cable's dual revenue stream may soon be over -- and while it won't make up for dwindling syndication and ad revenues, it will help. A lot.
Likewise, major media companies' push to get paid for their content could yet result in another new revenue stream for broadcasters. The talks with Apple hint at this. Hulu's declaration that it may yet charge for some content is another sign of digital pennies slowly morphing into dimes, quarters and maybe even dollars.
The decline of the traditional 100-episodes-to-syndication-nirvana also may prove liberating to network programmers, and not so catastrophic for broadcast bean counters.
After all, freed from the burden of trying to produce as many episodes as quickly as possible in order to get to the back end ASAP, broadcasters could start to experiment more with the idea of limited-order series. Or shortened episode counts.
That could lead to even better shows. Maybe big talent that would never commit to the drudgery of virtual nonstop production for seven years -- the reality of a hit drama or comedy in the past -- might consider signing on for a three-year gig in which only 13 episodes are produced every 12 months.
It's a model that has allowed cable networks from FX to HBO to land major names who'd never do a network show.
Then there's the promise of technological revolution. Just as James Cameron's "Avatar" offers the hope of keeping moviegoing an in-theater experience, TV soon could get a 3D boost as well.
The big buzz at this week's Consumer Electronics Show is all about 3D TV, which is months -- not years -- away from becoming a reality. It won't be cheap, but there are thousands of hours of programming that could suddenly become a lot more valuable if converted to 3D. Bottom line: It's another source of potential profits to a business that needs as many as it can find.
As the Awful Aughts fade into memory, it would be nice to be able to predict smooth sailing ahead for broadcasters. It would also be naive.
But that doesn't mean there's not reason to hope that, like a TV icon from a simpler time, the networks might just make it after all.
Monday, January 4, 2010
H&R Block Beware!
IRS to Boost Oversight of Paid Tax Preparers
By MARTIN VAUGHAN And MARY PILON
WASHINGTON—The Internal Revenue Service said it intends to regulate the legions of American tax-preparation companies, the first time the agency has sought to oversee these businesses. The move could affect how tax returns are prepared for tens of millions of people.
Under the new rules, employees of chain tax-preparation firms including H&R Block Inc. and Jackson Hewitt Tax Service Inc. will be required to pay a registration fee to the IRS, pass a "competency" exam and have 15 hours of education a year. Previously these employees weren't required to meet federal standards.
The requirements also will apply to hundreds of thousands of independent preparers and mom-and-pop storefronts that offer tax preparation as one of several services. About 60% of U.S. taxpayers use tax preparers, according to the IRS. That number includes certified public accountants, or CPAs, who are already subject to professional standards and aren't covered by the new rules.
The plan will take several years to implement and won't be in effect when taxpayers prepare their 2009 taxes for this April, the IRS said. But starting in 2011, all paid tax preparers will have to register with the IRS and include a unique identification number on any returns they prepare. Preparers will be given three years to pass a competency exam in either individual or small-business taxation.
"This is something that is long overdue," IRS Commissioner Doug Shulman said Monday. Until now, there have been "no national, professional standards for one of largest financial transactions individuals have each year," he said.
The IRS's move comes as Washington has looked to toughen regulatory oversight across the board, particularly in financial markets. Congress has toughened rules applying to credit-card firms. The White House is pushing an overhaul of financial regulation that would cover previously untouched or lightly regulated areas, like derivatives and hedge funds.
Some of the nation's largest tax preparers either welcomed or pushed for the new rules, seeing an advantage in regulations that could weed out some of their smallest competitors.
"We welcome the spotlight," said Kathryn Fulton, senior vice president for government relations at H&R Block, which said its business will be helped by forcing competitors to meet standards the firm already follows. "We think this should apply across the board," she said.
The testing and education requirements will apply to the preparer who actually signs the returns—a potential loophole that could allow chains such as H&R Block to avoid meeting requirements for preparers who work under a supervisor.
Intuit Inc., the maker of TurboTax, was among those lobbying for stricter oversight. Last year, 21 million tax returns were filed with the software, according to Julie Miller, an Intuit spokeswoman. Intuit staffs its hotlines primarily with CPAs and enrolled agents, workers who aren't accountants, but who are tested and certified by the IRS.
Journal Community
* discuss
“ This is a classic case of bandaging a scratch on the finger while allowing the severed artery to bleed. How about fixing the tax code so we don't need tax preparers? ”
—Nicholas Micskey
Tax-preparation software isn't covered by the plan unveiled by Monday, but the IRS could move to craft federal standards in this area. Mr. Shulman said the IRS will form a task force to examine the software industry's record on issues from accuracy to taxpayer-data security.
Like CPAs, volunteer tax preparers, such as those that help low-income taxpayers at free clinics, won't be subject to testing or education requirements.
For consumers, the new standards have the potential to raise tax-preparation fees, if tax preparers incur new costs to follow the regulations.
The regulations are primarily aimed at smaller firms, often branding themselves as generic "tax preparers" or "tax consultants." Government auditors, in undercover visits to firms, found high levels of inaccuracies and distortions on returns.
In 2006, the Better Business Bureau received 1,473 complaints against tax preparers, which ranked them 120 out of about 3,800 industry categories. In 2008, the number of tax-preparation complaints jumped to 2,276, ranking the industry 80th. Often, the complaints concerned errors that caused consumers to pay fees to resolve the problem.
"We want to make this into a profession, not just a part-time thing you set up on the kitchen table for six weeks during the tax season," said Frank Degen, an enrolled agent based in Setauket, N.Y. Enrolled agents have also been pushing for higher standards. "The good people have nothing to fear; it's the charlatans that hopefully will be rousted out."
Tom Ochsenschlager, a CPA and vice president at the American Institute of Certified Public Accountants, said the IRS has taken on a huge task in becoming "the consumer protection agency for tax preparers." He added: "Enforcing this is going to be a major undertaking."
Mr. Ochsenschlager worried the new regulations could confuse some consumers, because they aren't as tough as those required to become a CPA.
The IRS's Mr. Shulman said the agency will develop a public database through which consumers will be able to determine whether preparers have registered and passed the exam. The IRS said it also will explore whether to try to combat the growing use of refund-anticipation loans, in which firms offer upfront cash to customers expected to receive an IRS refund.
By MARTIN VAUGHAN And MARY PILON
WASHINGTON—The Internal Revenue Service said it intends to regulate the legions of American tax-preparation companies, the first time the agency has sought to oversee these businesses. The move could affect how tax returns are prepared for tens of millions of people.
Under the new rules, employees of chain tax-preparation firms including H&R Block Inc. and Jackson Hewitt Tax Service Inc. will be required to pay a registration fee to the IRS, pass a "competency" exam and have 15 hours of education a year. Previously these employees weren't required to meet federal standards.
The requirements also will apply to hundreds of thousands of independent preparers and mom-and-pop storefronts that offer tax preparation as one of several services. About 60% of U.S. taxpayers use tax preparers, according to the IRS. That number includes certified public accountants, or CPAs, who are already subject to professional standards and aren't covered by the new rules.
The plan will take several years to implement and won't be in effect when taxpayers prepare their 2009 taxes for this April, the IRS said. But starting in 2011, all paid tax preparers will have to register with the IRS and include a unique identification number on any returns they prepare. Preparers will be given three years to pass a competency exam in either individual or small-business taxation.
"This is something that is long overdue," IRS Commissioner Doug Shulman said Monday. Until now, there have been "no national, professional standards for one of largest financial transactions individuals have each year," he said.
The IRS's move comes as Washington has looked to toughen regulatory oversight across the board, particularly in financial markets. Congress has toughened rules applying to credit-card firms. The White House is pushing an overhaul of financial regulation that would cover previously untouched or lightly regulated areas, like derivatives and hedge funds.
Some of the nation's largest tax preparers either welcomed or pushed for the new rules, seeing an advantage in regulations that could weed out some of their smallest competitors.
"We welcome the spotlight," said Kathryn Fulton, senior vice president for government relations at H&R Block, which said its business will be helped by forcing competitors to meet standards the firm already follows. "We think this should apply across the board," she said.
The testing and education requirements will apply to the preparer who actually signs the returns—a potential loophole that could allow chains such as H&R Block to avoid meeting requirements for preparers who work under a supervisor.
Intuit Inc., the maker of TurboTax, was among those lobbying for stricter oversight. Last year, 21 million tax returns were filed with the software, according to Julie Miller, an Intuit spokeswoman. Intuit staffs its hotlines primarily with CPAs and enrolled agents, workers who aren't accountants, but who are tested and certified by the IRS.
Journal Community
* discuss
“ This is a classic case of bandaging a scratch on the finger while allowing the severed artery to bleed. How about fixing the tax code so we don't need tax preparers? ”
—Nicholas Micskey
Tax-preparation software isn't covered by the plan unveiled by Monday, but the IRS could move to craft federal standards in this area. Mr. Shulman said the IRS will form a task force to examine the software industry's record on issues from accuracy to taxpayer-data security.
Like CPAs, volunteer tax preparers, such as those that help low-income taxpayers at free clinics, won't be subject to testing or education requirements.
For consumers, the new standards have the potential to raise tax-preparation fees, if tax preparers incur new costs to follow the regulations.
The regulations are primarily aimed at smaller firms, often branding themselves as generic "tax preparers" or "tax consultants." Government auditors, in undercover visits to firms, found high levels of inaccuracies and distortions on returns.
In 2006, the Better Business Bureau received 1,473 complaints against tax preparers, which ranked them 120 out of about 3,800 industry categories. In 2008, the number of tax-preparation complaints jumped to 2,276, ranking the industry 80th. Often, the complaints concerned errors that caused consumers to pay fees to resolve the problem.
"We want to make this into a profession, not just a part-time thing you set up on the kitchen table for six weeks during the tax season," said Frank Degen, an enrolled agent based in Setauket, N.Y. Enrolled agents have also been pushing for higher standards. "The good people have nothing to fear; it's the charlatans that hopefully will be rousted out."
Tom Ochsenschlager, a CPA and vice president at the American Institute of Certified Public Accountants, said the IRS has taken on a huge task in becoming "the consumer protection agency for tax preparers." He added: "Enforcing this is going to be a major undertaking."
Mr. Ochsenschlager worried the new regulations could confuse some consumers, because they aren't as tough as those required to become a CPA.
The IRS's Mr. Shulman said the agency will develop a public database through which consumers will be able to determine whether preparers have registered and passed the exam. The IRS said it also will explore whether to try to combat the growing use of refund-anticipation loans, in which firms offer upfront cash to customers expected to receive an IRS refund.
Sunday, January 3, 2010
SK Telecom gets IBM cloud computing platform
IBM has built South Korea's first cloud computing environment for SK Telecom. The cloud environment gives developers the software and hardware needed to develop applications that will allow SK Telecom to offer up to 20 new services to their customers by the end of 2009, such as sports news feeds and a photo service.
The IBM-built cloud environment will allow SK Telecom and its business partners to more quickly develop, test and publish new end-user services. The new cloud environment delivers the following business and technology benefits: all the servers, storage and middleware required for application development on a secure, stable environment; low up front costs and reduced investment risks of mobile content developers; and faster time to market and decreased barriers to entry of new services.
"Our efforts to develop services with IBM and other partners reflect the latest trends in Web 2.0, which will ultimately enhance our customers' experience," said Jong-tae Ihm, senior VP and head of SK Telecom's data network office. "Together with venture capital firms our aim is to create new business opportunities by rapidly commercializing the ideas of content developers, further advancing the development of the information and communication technology industry."
SK Telecom also operates an R&D test bed for developing and testing cloud computing technologies. By the end of 2009 the SK Telecom plans to accommodate more than 20 services for NATE, SK Telecom's WAP portal and in the coming years says it hopes to extend its entire IT infrastructure to the cloud model. This will in turn enhance the competitiveness of the cloud industry and foster business partnerships and cooperation.
"With this new environment SK Telecom will lead in innovation by offering IT infrastructure for software developers through a Platform-as-a-Service model," said Kang-yoon Lee, head of IBM's Cloud Computing Center in Korea. "We believe this project will be a model example in how enterprises in Korea and worldwide can leverage the cloud environment to support business requirements in continual change."
For this project IBM Korea worked jointly with SK Telecom to develop the entire cloud environment—from concept planning to hardware and software selection and implementation. The cloud includes 80 systems, comprised of both System x and blade servers, Xen virtualization technology and IBM middleware and service management technology. Service management is a key to any successful enterprise cloud computing project as it orchestrates hundreds—even thousands—of services in a workload-optimized fashion, maximizing efficiency of the overall system. SK Telecom is using IBM's Tivoli Service Automation Manager to enable software to be leased and installed seamlessly, and virtual machines provisioned accordingly. In planning the cloud architecture, SK Telecom also used implementation services and operation process consulting from IBM Global Technology Services through to implementation services and operation process consulting.
The IBM-built cloud environment will allow SK Telecom and its business partners to more quickly develop, test and publish new end-user services. The new cloud environment delivers the following business and technology benefits: all the servers, storage and middleware required for application development on a secure, stable environment; low up front costs and reduced investment risks of mobile content developers; and faster time to market and decreased barriers to entry of new services.
"Our efforts to develop services with IBM and other partners reflect the latest trends in Web 2.0, which will ultimately enhance our customers' experience," said Jong-tae Ihm, senior VP and head of SK Telecom's data network office. "Together with venture capital firms our aim is to create new business opportunities by rapidly commercializing the ideas of content developers, further advancing the development of the information and communication technology industry."
SK Telecom also operates an R&D test bed for developing and testing cloud computing technologies. By the end of 2009 the SK Telecom plans to accommodate more than 20 services for NATE, SK Telecom's WAP portal and in the coming years says it hopes to extend its entire IT infrastructure to the cloud model. This will in turn enhance the competitiveness of the cloud industry and foster business partnerships and cooperation.
"With this new environment SK Telecom will lead in innovation by offering IT infrastructure for software developers through a Platform-as-a-Service model," said Kang-yoon Lee, head of IBM's Cloud Computing Center in Korea. "We believe this project will be a model example in how enterprises in Korea and worldwide can leverage the cloud environment to support business requirements in continual change."
For this project IBM Korea worked jointly with SK Telecom to develop the entire cloud environment—from concept planning to hardware and software selection and implementation. The cloud includes 80 systems, comprised of both System x and blade servers, Xen virtualization technology and IBM middleware and service management technology. Service management is a key to any successful enterprise cloud computing project as it orchestrates hundreds—even thousands—of services in a workload-optimized fashion, maximizing efficiency of the overall system. SK Telecom is using IBM's Tivoli Service Automation Manager to enable software to be leased and installed seamlessly, and virtual machines provisioned accordingly. In planning the cloud architecture, SK Telecom also used implementation services and operation process consulting from IBM Global Technology Services through to implementation services and operation process consulting.
Thursday, December 31, 2009
Monday, December 28, 2009
How Galleon's Boss Spun a Web of Contacts Into an Empire
The Man Who Wired Silicon Valley
Fund Boss Built Empire on Charm, Smarts and Information
By ROBERT A. GUTH and JUSTIN SCHECK
[The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.] Bloomberg News
The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.
Raj Rajaratnam liked to tell people that his first name meant "king" in Hindi, and, coupled with his last name, that made him "king of kings."
He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who'd call you an "idiot" or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?
In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America's rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam's business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts.
[The Rise of Raj]
Wealthy investors and executives swirled around the rented home -- $250,000 for the week -- on exclusive Star Island. Miami Beach twinkled in the darkness as they drank, smoked cigars and hobnobbed with beautiful women -- rent-a-dates, one Galleon employee called them -- around a swimming pool that seemed to disappear into the horizon.
But a fall was already brewing. Federal agents were circling Mr. Rajaratnam, starting to build the biggest insider-trading case in a generation. Prosecutors and securities regulators worked for the next 32 months before springing a sprawling indictment in October that charged Mr. Rajaratnam and 20 others with profiting off market-moving, inside information.
Mr. Rajaratnam has pleaded not guilty, and is free on bail.
"Throughout his career Mr. Rajaratnam has worked tirelessly as permitted by the securities laws to build a mosaic of public information about the companies he follows," his attorney, John Dowd, said. "His detailed, meticulous research into company fundamentals distinguished him as an exceptional analyst and portfolio manager. Mr. Rajaratnam is innocent of the charges against him and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence."
Wednesday:
How federal prosecutors assembled the biggest insider-trading case in a generation.
A Wall Street Journal examination of Mr. Rajaratnam's career -- including interviews with more than 75 ex-business associates and a review of copies of Mr. Rajaratnam's own handwritten notes -- gives the clearest picture yet of how, for two decades, he persuaded executives at some of America's most prominent companies to risk their careers by passing corporate secrets.
The Galleon investigation has already touched McKinsey & Co., International Business Machines Corp., Intel Corp. and Advanced Micro Devices Inc. in connection with the leaking of confidential information that Mr. Rajaratnam allegedly traded on.
Mr. Rajaratnam got his start as an analyst just as the moribund semiconductor industry started to boom. Charming and puckish, he made contacts in Silicon Valley's Indian expatriate community, using them to meet other executives. By the early 1990s, tech industry executives and Mr. Rajaratnam's co-workers say he made himself the hub of dozens of sources funneling him supposedly confidential corporate information. In exchange, Mr. Rajaratnam would often pass them tips he'd heard.
The question of his guilt or innocence will turn on whether in this relentless cultivation of contacts, Mr. Rajaratnam grew rich by knowingly trading on inside information gleaned from the influential and savvy players who made up the network.
'One-Legged Men'
As a Needham & Co. staffer walked into the firm's reception area one day in 1985, a young man in a suit popped out of his seat, flashed a big smile and said he was there for a job interview. There was nothing to indicate that he'd one day be the impresario of a $7 billion hedge fund.
Raj Rajaratnam, who had been at Chase Manhattan Bank for two years after getting his M.B.A., was one of a stream of applicants hoping to catch on at the fledgling investment bank. The word was Needham would take a chance on the callow and the cast off, as long as they were willing to work grueling hours for low pay.
"I hire one-legged men, and I beat the crap out of them," the firm's founder, George Needham, was heard to say. He declined to comment through a spokesman for this article.
It was a time when corporate information flowed more freely than today. Until the late 1990s, executives tended to speak more openly with analysts, unfettered by tighter regulations put into place during the past decade. Mr. Needham, who hasn't been accused of any wrongdoing, expected his analysts to prospect for information on the industries they covered anywhere, any time: On a plane, quiz your seatmate; in a bar, chat up the drinker next to you.
He also expected them to be frugal. He checked expense reports himself, telling employees to take red-eye flights and chiding them when he found redeemable soda cans in the trash.
The digs at 400 Park Ave. matched the ethos: Mr. Needham furnished the place with second-hand furniture, such as a $100 credenza from the office of Ivan Boesky, the disgraced financier busted for insider trading.
Mr. Rajaratnam thrived in a job that could have been a dead end: analyzing the computer chip industry. Beset by a flood of Japanese chips, U.S. makers were on the ropes, many large investors had fled the sector, and few analysts covered it in depth.
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Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Sipa Press
Raj Rajaratnam appeared on top of the world at a 2007 benefit in New York; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Mr. Rajaratnam would fly overnight from New York to California, bunk at a Palo Alto motel that fit Needham's $90-a-night limit, and spend his days with chip executives.
Mr. Rajaratnam cut a more appealing figure than rival analysts. Gerald Taylor, a former finance chief at Applied Materials Inc., a manufacturer of chip-making machines, found most of them to be ill-informed "prima donnas, hot-shots." Mr. Rajaratnam, on the other hand, told stories of "a kind of Horatio Alger" upbringing in Sri Lanka. He told others of how, as Tamils in Sri Lanka, his family had to dodge bullets during the country's civil war.
The exotic tales sometimes glossed over the fact that Mr. Rajaratnam grew up in relative wealth. The son of a manager for sewing machine maker Singer Co., he attended college in England before going on to the University of Pennsylvania's prestigious Wharton School.
'Get the Number'
The stories added a dash of color to the sharp analysis and willingness to push hard that impressed chip executives.
When Applied Materials' Mr. Taylor was explaining a new technology called "chemical vapor deposition" in early 1987, one analyst at a big Wall Street bank fell asleep during his presentation. Mr. Rajaratnam, though, flew to Silicon Valley, met Mr. Taylor and company engineers, and touted the technology in reports to investors.
Mr. Rajaratnam also visited Applied's customers and myriad suppliers elsewhere, something few analysts did.
"He earned your respect because he did his homework," says Mr. Taylor, even though he only gave Mr. Rajaratnam the same information he offered to other analysts.
Sometimes, Mr. Rajaratnam's persistence raised alarms. "He was always trying to weasel more information out of you," says David Orgill, who was Applied's head of investor relations in the late 1980s and early 1990s.
All along, Mr. Rajaratnam worked to persuade executives at Applied and other companies to use Needham to help underwrite their stock offerings. Applied and chip makers including Atmel Corp., Oak Technology Inc. and Opti Inc. used Needham for that; so did Xilinx Corp., which picked Needham "because Raj promised to write extensive research reports," says the company's then-senior vice president of finance, Gordon Steel.
As Mr. Rajaratnam brought more business to the firm, he pushed for more power by touting job offers from bigger Wall Street banks. Mr. Needham made Mr. Rajaratnam the firm's director of research and then, in 1991, president.
[GeorgeNeedham, with wife, emphasized building contacts to Mr. Rajaratnam.] Patrick McMullan
George Needham, with wife, emphasized building contacts to Mr. Rajaratnam.
That year, an analyst named Gerald Fleming found out that while Mr. Rajaratnam had moved up the organizational chart, he was still plugged in. At a regular morning meeting with Mr. Rajaratnam and a roomful of colleagues on May 13, Mr. Fleming estimated Applied's earnings per share at 41 cents. A short time later, Mr. Rajaratnam told Mr. Fleming the projection was wrong. "A good source" told him the earnings would be 42 cents a share. When Applied announced its earnings later in the day, that was the number.
In the morning meeting the next day, Mr. Rajaratnam told Mr. Fleming, "I hired you to develop sources and get the number."
Mr. Rajaratnam's close ties to Applied led Mr. Needham to jokingly ask in meetings about what the "pillow talk" was telling him about the company's earnings, say three former Needham employees.
"Mr. Rajaratnam's interactions with representatives of Applied Materials were completely professional at all times, and any suggestion to the contrary is false," Mr. Dowd, his attorney, said.
Mr. Rajaratnam expanded his power at Needham by starting a hedge fund to invest in tech stocks in 1992, tapping many of his chip-industry contacts for investments. By the beginning of 1994, Mr. Rajaratnam owned 17% of the firm -- second only to Mr. Needham's 26% -- and was paid $1 million that year. He also made sure that new executives knew his stature at the firm: "I'm the boss here," he told one in his first week there. "George may be the guy who has his name on the door, but I'm the guy who makes things happen."
Taking Note
Mr. Rajaratnam became a charismatic leader, cementing a culture at the firm that was defined by testing personal limits.
After Mr. Rajaratnam boasted one day that there was no spicy sauce that he couldn't stomach, a colleague brought a bottle of habanero sauce called Armageddon to the trading desk. A crowd gathered to watch as Mr. Rajaratnam doused two chicken wings with it and chowed down. Within moments, Mr. Rajaratnam was crying and coughing uncontrollably. He ran to the bathroom and left work early. Mr. Rajaratnam laughed about it later.
By the early 1990s, Microsoft Corp.'s Windows software and fast, cheap microprocessors from Intel spawned a personal-computer boom that reinvigorated the chip industry that Mr. Rajaratnam had worked so assiduously to cultivate.
Intel in early 1994 was facing new threats from AMD over the brains used in PCs. AMD had just won a big court case against its larger rival, and investors were itching to find out whether AMD's 486 chips were eroding Intel's dominance.
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Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Getty Images
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
On March 21 of that year, Mr. Rajaratnam was working the phones in his corner office overlooking Park Avenue and across a hallway from Needham's trading floor. It was two weeks before AMD would report earnings for its first fiscal quarter.
With a felt-tip pen, he wrote the date and two names in a spiral notebook. One was the first name of a manager at various tech companies in the 1990s, including AMD; the other was that of an engineer who worked at chip companies.
"Could do over $500 million," Mr. Rajaratnam noted farther down the first page. On an adjacent page, he wrote that the "goal," as of March 1, was "$484," then "New $515." Below that he wrote "486's" and "1 million units." In bold strokes across the two pages, he jotted other numbers, including prices for two versions of the 486 chip.
On April 4, AMD surprised Wall Street by announcing a record $513 million in revenue for its fiscal first quarter. The company said 486 chips sold more rapidly than expected early in the quarter, with sales surpassing 900,000 units.
A devoted note-taker, Mr. Rajaratnam kept a series of notebooks that recorded frequent conversations with people at tech companies, including Actel, Atmel and Alliance Semiconductor Inc. The pages were studded with the kind of information that analysts normally didn't get, the fruit of all those attentive visits to Silicon Valley.
It was the kind of work that enabled Mr. Rajaratnam to emerge from his office and be heard telling his top trader, Gary Rosenbach, that he had "the number" for earnings from Intel and AMD before they were announced.
Firms Try to Plug Leaks
Mr. Rajaratnam's aggressive tactics led several companies over the years to try to caulk leaks. Executives at chip makers Cirrus Logic and Silicon Valley Group, which both used Needham in stock offerings, grew frustrated with Mr. Rajaratnam badgering employees for tips.
In the mid-1990s, he offered to trade Cirrus executives proprietary information on other companies in exchange for Cirrus details. Similarly, Mr. Rajaratnam tried extracting information from Silicon Valley Group's then-chief executive, Papken Der Torossian, by saying he had information about orders from someone at an IBM plant in Vermont. Mr. Der Torossian says he turned him down.
Cirrus implemented a policy allowing just three top executives to talk with Mr. Rajaratnam and other analysts. Employment contracts were re-written to say that employees who violated that policy would be fired.
The Galleon Case
* Galleon Defendants Criticize Timing of Cases
* Rajaratnam, Chiesi Charged in Insider Case
* WSJ Topics: Raj Rajaratnam
At SVG, Mr. Der Torossian chastised employees for talking with Mr. Rajaratnam. Still, he says, while other analysts would "try to dig deep," Mr. Rajaratnam "was particularly clever, particularly good, and would get more information."
Around the same time, Intel held internal meetings to try to figure out how Mr. Rajaratnam's published reports were so uncannily accurate ahead of the company's earnings.
Concerns about Mr. Rajaratnam's activities helped cool Paine Webber's interest in buying Needham in 1995, according to a person with direct knowledge of negotiations. Soon, similar worries spurred complaints from some inside Needham.
Between 1993 and 1996, at least five Needham executives told Mr. Needham that they were worried about Mr. Rajaratnam's conduct, according to several people with knowledge of the situation. Needham brokerage clients complained to executives that Mr. Rajaratnam had potentially conflicting roles in the firm as president, fund manager, and sometime stock analyst. Normally, investment banks keep those areas separate to prevent clients' interests from clashing with the interests of bank-run funds.
Toward the end of 1996, the concerns fueled tensions between the executives and Mr. Rajaratnam. Meanwhile, Mr. Rajaratnam, who wanted to expand his hedge fund faster than Mr. Needham would allow, had been raising money for his own operation.
In November 1996, Mr. Needham told his employees that "I greatly regret to announce that Raj Rajaratnam, my friend and partner," would be leaving to form his own firm, ending a breakneck 11-year run at Needham.
Mr. Rajaratnam set up Galleon in a small office at Lexington Avenue and 57th Street, about a block from his old firm. He hired several former colleagues, including Mr. Rosenbach, the firm's head trader, and tapped Silicon Valley contacts for investment. Riding the wave of investors anxious to get in on the tech boom, Galleon was managing $800 million by the end of 1997, up from up from $250 million 12 months before.
Mr. Rajaratnam established a looser culture at his new firm. On Thursdays, employees could sign up to get massages at the office. Still, the game plan was the same as Needham: watch expenses closely and ferret out corporate information.
Not long after Galleon launched, Intel renewed its efforts to find out if someone at the company was leaking financial data to Mr. Rajaratnam. Intel installed cameras by a fax machine in its Santa Clara, Calif., headquarters. In March 1998, it recorded an employee named Roomy Khan sending handwritten notes and documents marked "Intel Confidential" to Mr. Rajaratnam.
Included were data on Intel chip orders from several dozen computer makers and selling prices of those chips. Combined, the information could be used to determine Intel's revenue for the quarter.
Ms. Khan left Intel soon after, and the company reported her to federal authorities. Soon, she had a new job. Mr. Rajaratnam hired her at Galleon.
She left Galleon after a year. In 2001, Ms. Khan agreed to plead guilty to wire-fraud charges -- and to cooperate in a probe of Mr. Rajaratnam. Ms. Khan served six months under house arrest, but prosecutors dropped the investigation, unable to prove that Mr. Rajaratnam traded on the information.
Galleon Sets Sail
Each day at Galleon started with a morning meeting. Traders and analysts streamed nearly all at once into a conference room trying to get there before start time -- 8:35 in recent years. A stickler for punctuality, Mr. Rajaratnam would sometimes fine latecomers $25.
Surrounded by his staff, Mr. Rajaratnam began the meeting by asking for an overview of the significant events of the day or week -- earnings announcements, a product launch, anything that might move stocks. Mr. Rajaratnam grilled them, sometimes sending analysts leafing through binders to find a figure, such as gross margins or the pricing of a product line.
He often got angry if an analyst couldn't confidently say whether a stock would go up or down. Mr. Rajaratnam always wanted "the variant view," his mantra for an opinion on a stock that was different from the rest of Wall Street. "If the market comes into your variant view, we make money," he would say.
At Galleon, Mr. Rajaratnam took his fondness for pranks and dares to a new level. When executives from stun-gun maker Taser International Inc. came to make an investment pitch around 2005, Mr. Rajaratnam offered $5,000 to anyone who'd agree to be shocked. Employees gathered around as two people propped up trader Keryn Limmer at the elbows and another person fired the weapon. Ms. Limmer's legs buckled beneath her from the shock. Ms. Limmer declined to comment.
That same year, employees arrived at Galleon's morning meeting to a surprise: In the conference room was a dwarf whom Mr. Rajaratnam introduced as an analyst hired to cover "small-cap" stocks. He was, in fact, an actor hired for an April Fool's Day gag.
By 2004, Mr. Rajaratnam was building a profile outside the hedge-fund world. He joined the board of the Harlem Children's Zone, an education nonprofit, and later raised about $7.5 million for victims of the South Asian tsunami. In January 2007, a list of celebrity donors honored Mr. Rajaratnam's philanthropy with a symphony performance at Lincoln Center.
By the time of the Super Bowl party a month later, Galleon and Mr. Rajaratnam appeared to be on top of the world. Approaching $7 billion under management, the firm moved into larger Manhattan offices at Madison Avenue and 57th Street, expanded into Asia and started a new fund based in California. Employees were convinced the firm would soon go public.
Yet all was not well. Mr. Rajaratnam was cooperating with a Securities and Exchange Commission investigation of his younger brother Rengan's now-defunct hedge fund, Sedna. No charges have been filed in that investigation, and Rengan Rajaratnam's lawyer declined to comment.
Raj Rajaratnam answered questions and provided reams of Sedna-related documents that raised investigators' suspicions about Galleon itself.
As the summer ended that year, the real shape of the threat was only beginning to emerge. On a hot September afternoon, Mr. Rajaratnam threw a party at his Greenwich, Conn., home for Galleon employees and their families -- a clambake with a cowboy theme, owing to the day's star attraction, country singer Kenny Rogers. Guests wore cowboy hats and sheriff's badges as they ate lobster while sitting on white folding chairs or red blankets with the Galleon logo.
Mr. Rajaratnam seemed relaxed, mingling with family and friends. One guest stuck out, a blonde woman in a black spaghetti-strap top, low-slung tangerine skirt and aviator sunglasses. A few guests knew her as Danielle Chiesi, a trader at a Bear Stearns hedge fund who had strong chip-industry connections. Some there wondered what Ms. Chiesi, accompanied by her mother, was doing at a Galleon party.
Mr. Rogers' hit song "The Gambler" was a favorite of Mr. Rajaratnam's: "You got to know when to hold 'em, know when to fold 'em, know when to walk away and know when to run...."
As Mr. Rogers sang, Ms. Chiesi sat in a folding chair; Mr. Rajaratnam stood a few paces behind.
Within a year federal agents would be recording their phone calls, pulling at loose threads in a web that had taken two decades to weave.
Fund Boss Built Empire on Charm, Smarts and Information
By ROBERT A. GUTH and JUSTIN SCHECK
[The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.] Bloomberg News
The case against fund king Raj Rajaratnam hinges on whether he knowingly traded on inside information.
Raj Rajaratnam liked to tell people that his first name meant "king" in Hindi, and, coupled with his last name, that made him "king of kings."
He told the story with the broad, toothy smile that had ingratiated him to a generation of Silicon Valley executives. The grin softened the edge of a boss who'd call you an "idiot" or prod you into some humiliating stunt: Would you take $5,000 to be shocked with a stun gun?
In a mansion on a manmade island in Biscayne Bay in February 2007, Mr. Rajaratnam seemed determined to live up to his regal description of his name. It was Super Bowl weekend, and America's rich and powerful had descended on South Florida to watch the Indianapolis Colts play the Chicago Bears. Mostly they were there to do business. Mr. Rajaratnam's business was running a hedge fund, Galleon Group, that had made him a billionaire. And that business was based on contacts.
[The Rise of Raj]
Wealthy investors and executives swirled around the rented home -- $250,000 for the week -- on exclusive Star Island. Miami Beach twinkled in the darkness as they drank, smoked cigars and hobnobbed with beautiful women -- rent-a-dates, one Galleon employee called them -- around a swimming pool that seemed to disappear into the horizon.
But a fall was already brewing. Federal agents were circling Mr. Rajaratnam, starting to build the biggest insider-trading case in a generation. Prosecutors and securities regulators worked for the next 32 months before springing a sprawling indictment in October that charged Mr. Rajaratnam and 20 others with profiting off market-moving, inside information.
Mr. Rajaratnam has pleaded not guilty, and is free on bail.
"Throughout his career Mr. Rajaratnam has worked tirelessly as permitted by the securities laws to build a mosaic of public information about the companies he follows," his attorney, John Dowd, said. "His detailed, meticulous research into company fundamentals distinguished him as an exceptional analyst and portfolio manager. Mr. Rajaratnam is innocent of the charges against him and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence."
Wednesday:
How federal prosecutors assembled the biggest insider-trading case in a generation.
A Wall Street Journal examination of Mr. Rajaratnam's career -- including interviews with more than 75 ex-business associates and a review of copies of Mr. Rajaratnam's own handwritten notes -- gives the clearest picture yet of how, for two decades, he persuaded executives at some of America's most prominent companies to risk their careers by passing corporate secrets.
The Galleon investigation has already touched McKinsey & Co., International Business Machines Corp., Intel Corp. and Advanced Micro Devices Inc. in connection with the leaking of confidential information that Mr. Rajaratnam allegedly traded on.
Mr. Rajaratnam got his start as an analyst just as the moribund semiconductor industry started to boom. Charming and puckish, he made contacts in Silicon Valley's Indian expatriate community, using them to meet other executives. By the early 1990s, tech industry executives and Mr. Rajaratnam's co-workers say he made himself the hub of dozens of sources funneling him supposedly confidential corporate information. In exchange, Mr. Rajaratnam would often pass them tips he'd heard.
The question of his guilt or innocence will turn on whether in this relentless cultivation of contacts, Mr. Rajaratnam grew rich by knowingly trading on inside information gleaned from the influential and savvy players who made up the network.
'One-Legged Men'
As a Needham & Co. staffer walked into the firm's reception area one day in 1985, a young man in a suit popped out of his seat, flashed a big smile and said he was there for a job interview. There was nothing to indicate that he'd one day be the impresario of a $7 billion hedge fund.
Raj Rajaratnam, who had been at Chase Manhattan Bank for two years after getting his M.B.A., was one of a stream of applicants hoping to catch on at the fledgling investment bank. The word was Needham would take a chance on the callow and the cast off, as long as they were willing to work grueling hours for low pay.
"I hire one-legged men, and I beat the crap out of them," the firm's founder, George Needham, was heard to say. He declined to comment through a spokesman for this article.
It was a time when corporate information flowed more freely than today. Until the late 1990s, executives tended to speak more openly with analysts, unfettered by tighter regulations put into place during the past decade. Mr. Needham, who hasn't been accused of any wrongdoing, expected his analysts to prospect for information on the industries they covered anywhere, any time: On a plane, quiz your seatmate; in a bar, chat up the drinker next to you.
He also expected them to be frugal. He checked expense reports himself, telling employees to take red-eye flights and chiding them when he found redeemable soda cans in the trash.
The digs at 400 Park Ave. matched the ethos: Mr. Needham furnished the place with second-hand furniture, such as a $100 credenza from the office of Ivan Boesky, the disgraced financier busted for insider trading.
Mr. Rajaratnam thrived in a job that could have been a dead end: analyzing the computer chip industry. Beset by a flood of Japanese chips, U.S. makers were on the ropes, many large investors had fled the sector, and few analysts covered it in depth.
View Full Image
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Sipa Press
Raj Rajaratnam appeared on top of the world at a 2007 benefit in New York; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Raj Rajaratnam appeared on top of theworld at a 2007 benefit in NewYork; with actress Blythe Danner, AIDS activist Brenda Freiberg and his wife, Asha.
Mr. Rajaratnam would fly overnight from New York to California, bunk at a Palo Alto motel that fit Needham's $90-a-night limit, and spend his days with chip executives.
Mr. Rajaratnam cut a more appealing figure than rival analysts. Gerald Taylor, a former finance chief at Applied Materials Inc., a manufacturer of chip-making machines, found most of them to be ill-informed "prima donnas, hot-shots." Mr. Rajaratnam, on the other hand, told stories of "a kind of Horatio Alger" upbringing in Sri Lanka. He told others of how, as Tamils in Sri Lanka, his family had to dodge bullets during the country's civil war.
The exotic tales sometimes glossed over the fact that Mr. Rajaratnam grew up in relative wealth. The son of a manager for sewing machine maker Singer Co., he attended college in England before going on to the University of Pennsylvania's prestigious Wharton School.
'Get the Number'
The stories added a dash of color to the sharp analysis and willingness to push hard that impressed chip executives.
When Applied Materials' Mr. Taylor was explaining a new technology called "chemical vapor deposition" in early 1987, one analyst at a big Wall Street bank fell asleep during his presentation. Mr. Rajaratnam, though, flew to Silicon Valley, met Mr. Taylor and company engineers, and touted the technology in reports to investors.
Mr. Rajaratnam also visited Applied's customers and myriad suppliers elsewhere, something few analysts did.
"He earned your respect because he did his homework," says Mr. Taylor, even though he only gave Mr. Rajaratnam the same information he offered to other analysts.
Sometimes, Mr. Rajaratnam's persistence raised alarms. "He was always trying to weasel more information out of you," says David Orgill, who was Applied's head of investor relations in the late 1980s and early 1990s.
All along, Mr. Rajaratnam worked to persuade executives at Applied and other companies to use Needham to help underwrite their stock offerings. Applied and chip makers including Atmel Corp., Oak Technology Inc. and Opti Inc. used Needham for that; so did Xilinx Corp., which picked Needham "because Raj promised to write extensive research reports," says the company's then-senior vice president of finance, Gordon Steel.
As Mr. Rajaratnam brought more business to the firm, he pushed for more power by touting job offers from bigger Wall Street banks. Mr. Needham made Mr. Rajaratnam the firm's director of research and then, in 1991, president.
[GeorgeNeedham, with wife, emphasized building contacts to Mr. Rajaratnam.] Patrick McMullan
George Needham, with wife, emphasized building contacts to Mr. Rajaratnam.
That year, an analyst named Gerald Fleming found out that while Mr. Rajaratnam had moved up the organizational chart, he was still plugged in. At a regular morning meeting with Mr. Rajaratnam and a roomful of colleagues on May 13, Mr. Fleming estimated Applied's earnings per share at 41 cents. A short time later, Mr. Rajaratnam told Mr. Fleming the projection was wrong. "A good source" told him the earnings would be 42 cents a share. When Applied announced its earnings later in the day, that was the number.
In the morning meeting the next day, Mr. Rajaratnam told Mr. Fleming, "I hired you to develop sources and get the number."
Mr. Rajaratnam's close ties to Applied led Mr. Needham to jokingly ask in meetings about what the "pillow talk" was telling him about the company's earnings, say three former Needham employees.
"Mr. Rajaratnam's interactions with representatives of Applied Materials were completely professional at all times, and any suggestion to the contrary is false," Mr. Dowd, his attorney, said.
Mr. Rajaratnam expanded his power at Needham by starting a hedge fund to invest in tech stocks in 1992, tapping many of his chip-industry contacts for investments. By the beginning of 1994, Mr. Rajaratnam owned 17% of the firm -- second only to Mr. Needham's 26% -- and was paid $1 million that year. He also made sure that new executives knew his stature at the firm: "I'm the boss here," he told one in his first week there. "George may be the guy who has his name on the door, but I'm the guy who makes things happen."
Taking Note
Mr. Rajaratnam became a charismatic leader, cementing a culture at the firm that was defined by testing personal limits.
After Mr. Rajaratnam boasted one day that there was no spicy sauce that he couldn't stomach, a colleague brought a bottle of habanero sauce called Armageddon to the trading desk. A crowd gathered to watch as Mr. Rajaratnam doused two chicken wings with it and chowed down. Within moments, Mr. Rajaratnam was crying and coughing uncontrollably. He ran to the bathroom and left work early. Mr. Rajaratnam laughed about it later.
By the early 1990s, Microsoft Corp.'s Windows software and fast, cheap microprocessors from Intel spawned a personal-computer boom that reinvigorated the chip industry that Mr. Rajaratnam had worked so assiduously to cultivate.
Intel in early 1994 was facing new threats from AMD over the brains used in PCs. AMD had just won a big court case against its larger rival, and investors were itching to find out whether AMD's 486 chips were eroding Intel's dominance.
View Full Image
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Getty Images
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
Danielle Chiesi, a trader known for her tech-industry connections, surprised some Galleon employees by attending a party at Mr. Rajaratnam's house.
On March 21 of that year, Mr. Rajaratnam was working the phones in his corner office overlooking Park Avenue and across a hallway from Needham's trading floor. It was two weeks before AMD would report earnings for its first fiscal quarter.
With a felt-tip pen, he wrote the date and two names in a spiral notebook. One was the first name of a manager at various tech companies in the 1990s, including AMD; the other was that of an engineer who worked at chip companies.
"Could do over $500 million," Mr. Rajaratnam noted farther down the first page. On an adjacent page, he wrote that the "goal," as of March 1, was "$484," then "New $515." Below that he wrote "486's" and "1 million units." In bold strokes across the two pages, he jotted other numbers, including prices for two versions of the 486 chip.
On April 4, AMD surprised Wall Street by announcing a record $513 million in revenue for its fiscal first quarter. The company said 486 chips sold more rapidly than expected early in the quarter, with sales surpassing 900,000 units.
A devoted note-taker, Mr. Rajaratnam kept a series of notebooks that recorded frequent conversations with people at tech companies, including Actel, Atmel and Alliance Semiconductor Inc. The pages were studded with the kind of information that analysts normally didn't get, the fruit of all those attentive visits to Silicon Valley.
It was the kind of work that enabled Mr. Rajaratnam to emerge from his office and be heard telling his top trader, Gary Rosenbach, that he had "the number" for earnings from Intel and AMD before they were announced.
Firms Try to Plug Leaks
Mr. Rajaratnam's aggressive tactics led several companies over the years to try to caulk leaks. Executives at chip makers Cirrus Logic and Silicon Valley Group, which both used Needham in stock offerings, grew frustrated with Mr. Rajaratnam badgering employees for tips.
In the mid-1990s, he offered to trade Cirrus executives proprietary information on other companies in exchange for Cirrus details. Similarly, Mr. Rajaratnam tried extracting information from Silicon Valley Group's then-chief executive, Papken Der Torossian, by saying he had information about orders from someone at an IBM plant in Vermont. Mr. Der Torossian says he turned him down.
Cirrus implemented a policy allowing just three top executives to talk with Mr. Rajaratnam and other analysts. Employment contracts were re-written to say that employees who violated that policy would be fired.
The Galleon Case
* Galleon Defendants Criticize Timing of Cases
* Rajaratnam, Chiesi Charged in Insider Case
* WSJ Topics: Raj Rajaratnam
At SVG, Mr. Der Torossian chastised employees for talking with Mr. Rajaratnam. Still, he says, while other analysts would "try to dig deep," Mr. Rajaratnam "was particularly clever, particularly good, and would get more information."
Around the same time, Intel held internal meetings to try to figure out how Mr. Rajaratnam's published reports were so uncannily accurate ahead of the company's earnings.
Concerns about Mr. Rajaratnam's activities helped cool Paine Webber's interest in buying Needham in 1995, according to a person with direct knowledge of negotiations. Soon, similar worries spurred complaints from some inside Needham.
Between 1993 and 1996, at least five Needham executives told Mr. Needham that they were worried about Mr. Rajaratnam's conduct, according to several people with knowledge of the situation. Needham brokerage clients complained to executives that Mr. Rajaratnam had potentially conflicting roles in the firm as president, fund manager, and sometime stock analyst. Normally, investment banks keep those areas separate to prevent clients' interests from clashing with the interests of bank-run funds.
Toward the end of 1996, the concerns fueled tensions between the executives and Mr. Rajaratnam. Meanwhile, Mr. Rajaratnam, who wanted to expand his hedge fund faster than Mr. Needham would allow, had been raising money for his own operation.
In November 1996, Mr. Needham told his employees that "I greatly regret to announce that Raj Rajaratnam, my friend and partner," would be leaving to form his own firm, ending a breakneck 11-year run at Needham.
Mr. Rajaratnam set up Galleon in a small office at Lexington Avenue and 57th Street, about a block from his old firm. He hired several former colleagues, including Mr. Rosenbach, the firm's head trader, and tapped Silicon Valley contacts for investment. Riding the wave of investors anxious to get in on the tech boom, Galleon was managing $800 million by the end of 1997, up from up from $250 million 12 months before.
Mr. Rajaratnam established a looser culture at his new firm. On Thursdays, employees could sign up to get massages at the office. Still, the game plan was the same as Needham: watch expenses closely and ferret out corporate information.
Not long after Galleon launched, Intel renewed its efforts to find out if someone at the company was leaking financial data to Mr. Rajaratnam. Intel installed cameras by a fax machine in its Santa Clara, Calif., headquarters. In March 1998, it recorded an employee named Roomy Khan sending handwritten notes and documents marked "Intel Confidential" to Mr. Rajaratnam.
Included were data on Intel chip orders from several dozen computer makers and selling prices of those chips. Combined, the information could be used to determine Intel's revenue for the quarter.
Ms. Khan left Intel soon after, and the company reported her to federal authorities. Soon, she had a new job. Mr. Rajaratnam hired her at Galleon.
She left Galleon after a year. In 2001, Ms. Khan agreed to plead guilty to wire-fraud charges -- and to cooperate in a probe of Mr. Rajaratnam. Ms. Khan served six months under house arrest, but prosecutors dropped the investigation, unable to prove that Mr. Rajaratnam traded on the information.
Galleon Sets Sail
Each day at Galleon started with a morning meeting. Traders and analysts streamed nearly all at once into a conference room trying to get there before start time -- 8:35 in recent years. A stickler for punctuality, Mr. Rajaratnam would sometimes fine latecomers $25.
Surrounded by his staff, Mr. Rajaratnam began the meeting by asking for an overview of the significant events of the day or week -- earnings announcements, a product launch, anything that might move stocks. Mr. Rajaratnam grilled them, sometimes sending analysts leafing through binders to find a figure, such as gross margins or the pricing of a product line.
He often got angry if an analyst couldn't confidently say whether a stock would go up or down. Mr. Rajaratnam always wanted "the variant view," his mantra for an opinion on a stock that was different from the rest of Wall Street. "If the market comes into your variant view, we make money," he would say.
At Galleon, Mr. Rajaratnam took his fondness for pranks and dares to a new level. When executives from stun-gun maker Taser International Inc. came to make an investment pitch around 2005, Mr. Rajaratnam offered $5,000 to anyone who'd agree to be shocked. Employees gathered around as two people propped up trader Keryn Limmer at the elbows and another person fired the weapon. Ms. Limmer's legs buckled beneath her from the shock. Ms. Limmer declined to comment.
That same year, employees arrived at Galleon's morning meeting to a surprise: In the conference room was a dwarf whom Mr. Rajaratnam introduced as an analyst hired to cover "small-cap" stocks. He was, in fact, an actor hired for an April Fool's Day gag.
By 2004, Mr. Rajaratnam was building a profile outside the hedge-fund world. He joined the board of the Harlem Children's Zone, an education nonprofit, and later raised about $7.5 million for victims of the South Asian tsunami. In January 2007, a list of celebrity donors honored Mr. Rajaratnam's philanthropy with a symphony performance at Lincoln Center.
By the time of the Super Bowl party a month later, Galleon and Mr. Rajaratnam appeared to be on top of the world. Approaching $7 billion under management, the firm moved into larger Manhattan offices at Madison Avenue and 57th Street, expanded into Asia and started a new fund based in California. Employees were convinced the firm would soon go public.
Yet all was not well. Mr. Rajaratnam was cooperating with a Securities and Exchange Commission investigation of his younger brother Rengan's now-defunct hedge fund, Sedna. No charges have been filed in that investigation, and Rengan Rajaratnam's lawyer declined to comment.
Raj Rajaratnam answered questions and provided reams of Sedna-related documents that raised investigators' suspicions about Galleon itself.
As the summer ended that year, the real shape of the threat was only beginning to emerge. On a hot September afternoon, Mr. Rajaratnam threw a party at his Greenwich, Conn., home for Galleon employees and their families -- a clambake with a cowboy theme, owing to the day's star attraction, country singer Kenny Rogers. Guests wore cowboy hats and sheriff's badges as they ate lobster while sitting on white folding chairs or red blankets with the Galleon logo.
Mr. Rajaratnam seemed relaxed, mingling with family and friends. One guest stuck out, a blonde woman in a black spaghetti-strap top, low-slung tangerine skirt and aviator sunglasses. A few guests knew her as Danielle Chiesi, a trader at a Bear Stearns hedge fund who had strong chip-industry connections. Some there wondered what Ms. Chiesi, accompanied by her mother, was doing at a Galleon party.
Mr. Rogers' hit song "The Gambler" was a favorite of Mr. Rajaratnam's: "You got to know when to hold 'em, know when to fold 'em, know when to walk away and know when to run...."
As Mr. Rogers sang, Ms. Chiesi sat in a folding chair; Mr. Rajaratnam stood a few paces behind.
Within a year federal agents would be recording their phone calls, pulling at loose threads in a web that had taken two decades to weave.
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