Friday, May 13, 2011

Raj Rajaratnam Conviction

Posting to Blogger was down for over 24 hours, so this is a bit delayed.  Two days ago, Galleon Group founder Raj Rajaratnam was convicted of 14 counts of securities fraud and conspiracy.  One of the things that stands out to me about this case is the breadth of Rajaratnam’s insider trading network.  The WSJ has an interactive graphic that maps out Rajaratnam’s network, and seeing the number of people involved in the network blows me away. 

Remember, this isn't a diagram of Rajaratnam's golfing buddies--these are people who have at least been accused of passing on insider information.  More than anything, seeing such a network makes it hard for me to believe that this is an isolated incident.  Indeed, current trends suggest that we are just starting to see how pervasive insider trading really is.  According to the WSJ:

Never before have there been so many major, unrelated insider-trading cases brought by authorities. In the past 18 months alone, the U.S. has criminally charged 47 hedge-fund managers and others with insider trading; 36 now have been convicted or pleaded guilty.

In a statement, Manhattan U.S. Attorney Preet Bharara said: "Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market. It cheats the ordinary investor.… We will continue to pursue and prosecute those who believe they are both above the law and too smart to get caught."

Seeing so many executives who appear to believe they are, “above the law and too smart to get caught,” worries me.  If they rationalize insider trading, despite clear laws against such activity, what other rationalizations are they making? 

1 comment:

  1. In your experience, is there anything that auditors could be doing to deter or detect these kind of issues? Looking forward, how can we battle this, or is it just an issue of personal ethics?