The conviction of Raj Rajaratnam, a billionaire financier and founder of the Galleon Group, one of the world's largest hedge fund management firms, by a New York federal court jury on five counts of securities fraud and nine of conspiracy to commit fraud between 2003 and 2009 sends a clear message to the financial markets. It is that they are not above the law and that white-collar crime is still crime. The New York jury, which deliberated for 12 days, rejected Mr. Rajaratnam's defence that the detailed “mosaic” of information given him by high-level contacts within companies amounted to a legitimate strategy. Mr. Rajaratnam faces a minimum of 15 years and a half in prison; he will appeal, but under a $100 million bail arrangement he is electronically tagged and remains under house arrest until his sentencing on July 29. Out of 47 people charged with insider trading in the last 18 months, he is the 35th to be convicted. In Galleon-related cases, 21 out of 26 defendants have pleaded guilty, including Danielle Chiesi, formerly of Bear Stearns, Intel's ex-staffer Rajiv Goel, and IBM's former executive Robert Moffat. The question is whether prosecutors will now go after other big fish who went to the edge of the law in dealing with Mr. Rajaratnam.
As for insider trading, it is significant that the Federal Bureau of Investigation has used anti-mafia techniques like wiretaps to good effect. Corporate lawyers may be right that the biggest successful Wall Street prosecution since the Milken and Boesky scandals of the 1980s will have a “chilling” effect on the way financial trading is done but that by itself will not address the wider issues. The fact that many of those convicted were, at the time of their crimes, working in some of the world's most powerful financial companies will only serve to deepen public distrust of the financial sector. Suspicion is already widespread as a result of the 2007-08 global crash and the failure of the massive state-funded bank bailouts to deliver the promised economic revival. Furthermore, criminal investigation, by its very nature, takes place ex post facto, and its deterrent effects are uncertain, depending on the perceptions of risk under the circumstances. That, together with the complexity of the financial sector, means that the moral effects of high-profile convictions may fade under the relentless pressure to make big bucks quickly. Criminal prosecutions in this area cannot replace well-designed and resolutely implemented regulatory legislation. That, however, will require political will of a kind few countries seem to have in the current climate, however much the public supports such action.
Keywords: Raj Rajaratnam conviction, Wall Street, hedge funds
One of the close friends of Rajat Gupta said he could not believe that such a good man has
committed these crimes. Greed for Money had made this holy cow to become a Black Sheep
. It is in our ethnic genes and social environment, no wonder Rajat Gupta had committed this
crime. As our country is known for the rampant corruption , I will not accuse him of having
brought disrepute to the country . He continued to be an Indian in USA . In India this may not
viewed as serious Crime but the Regulators have to be vigilant , the Government should
have the surveillance in place ignoring cries of freedom of individuals and media should
expose as there is privacy for public corporates . In USA , 51 out of 56 have already been
convicted . Sri Lankan Raj Rathnam got 11 years and the Desi Rajat Gupta may also get
convicted certainly not less than 11 years. Indian investors interest should be protected at
any cost .
For many years after World War-II, the US flourished as a nation, driven by strong work ethics, backed by an innovative manufacturing companies and a relatively clean financial sector. This was not the case in the years 1870 to 1909, where a reading of history shows a multitude of financial scams that would put our 2G scam to shame! It was the American voter, backed by idealistic politicians of the so called "progressive movement", as exemplified by Theodore Roosevelt that brought back probity into American business. It is unfortunate that these gains were more or less erased by lax public policy in the two decades running up to the financial crisis of 2008. The present political difficulty of pushing through strong enforcement regulations in the US is reminiscent of the difficulties faced by its reformers in the era before anti-trust regulation was enacted. The USA will undergo a mighty transformation in the decade ahead, backed by a well deserved distrust of their financial sector.
If we have not had enough with the recent corruption scandals in India , we now have many ethnic Indians and PIO in the USA involved and convicted in the 'INSIDER TRADING' scandal. It's not another feather in the cap for us Indians to be proud of .We already have a reputation world over as 'a people lacking in civic sense'. On the professional front, although Indians are holding key positions globally in various organisations , now we are making a 'name' for ourselves as also "unethical professionals ". Its not right to generalise , but for sure we all must question , why so many black sheeps emerge from our sub-continent, when there are 5 Bn other people in this world .Is it our religion , culture ,education , ethnic genes, social environment or something else that is responsible for us earning such ill-repute Why and where has our Indian spirituality and Gandhian principles vanished ? Its time we Indians - all of us , take time to think and find answers, atleast for the sake of the next generation .Else we are all shooting ourselves in the foot.
Finally, it is time to send these criminals to jail. We are tired of hearing about 'high-flying' expats in the US who are being exposed for the charlatans they are. As far as Gupta and his band of corporate goons, their time of reckoning is at hand. About 15 years back, Indians in the US were looked up to as ethical professionals, not anymore. Thanks to our adulation of b-school grads, these white collar 'desi' criminals are entrenched in every crooked wall street scam.
There is something odd about nailing the outsider Raj on the basis of the guilty pleas of insiders. Is it not odd that Rajat Gupta, one of the alleged insiders who provided information to the outsider Raj is not a co-accused? The SEC has sued Rajat Gupta in a civil suit, separate from the criminal trial for Raj, but clearly timed to influence Raj's trial. There is nothing like a level playing field when it comes to making corporate information public. It is an ideal to aspire for, but it can never be achieved through the fear of consequences. Chronic risk takers are not going to be deterred. For every Raj caught, there is probably a 100 more. And for every clean prosecution, there are probably 10 bungled prosecutions. Overall, I think the media scrutiny is welcome, but it's not going to change anything. In the US the media and politicians need people like Raj to stay in business. It is a symbiotic relationship.
New York Federal Court's indictment of Rajaratnam may result in adverse climate for the financial sector world over and it will come under severe scrutiny by not only the governments and regulators but also by the media world over. Memories of the sub-prime mortgage crisis and the several cases of bank failures in the west have still not faded from public attention. You have rightly pointed out that they are not above law. Companies are vital for our accelerated growth but the need for these to be watched has been reiterated in the aftermath of every financial sector misdemeanor. You have appropriately referred to the FBI using to good effect the anti-mafia techniques like the wire taps. Nearer home, we have seen in quite a few instances how these wire taps have helped the exposure before the nation and people. The last two decades have witnessed researched works abroad on how corporates wield control-far greater than states and with repeated instances of financial misdemeanors coming to the forefront world over, it will be perfectly well within the right of the state to permit the state surveillance agencies to make such wiretaps in national interest. The aggrieved companies and persons cannot take recourse to legal coverage against such wiretaps in public interest. The US Supreme Court seems to have recently given a landmark judgment in March this year that companies have no right to personal privacy. The implications of this judgement need to be studied by our legal fraternity to ensure that such corporate misdemeanors do not occur in India and the government and its agencies are watchful of their activities. Finally you conclude your edit with the hope on a well-designed and resolutely implemented regulatory legislation. Even this cannot ensure occurrences of misdemeanors like these. Nothing , therefore, like eternal public vigilance and media gaze. Society will naturally look to the fraternity of accountants, auditors and newspapermen. (In the Satyam case, the former two were found wanting)
It is not a hidden fact that economic crimes are highly complex and deep rooted in the financial system itself and the same is true world over. The difference lies in the approach of regulators and their ability not only to identify such crimes but also to successfully prosecute them. The prosecution of Raj Rajaratnam by the US authorities clearly shows the intent. Similarly, the investigation is underway against Rajat Gupta (erstwhile global CEO of McKinsey & Co.) for his dealings with Raj Rajaratnam. The case of Indian markets is totally different. I would not be amused if the decision makers in our financial system (corporate honchos, investment bankers, high profile consultants, directors, regulators etc) don't treat it as a crime at all. Remember the share markets and investment funds work on super fast & reliable information exchange and companies make money for such information asymmetry & inefficiencies. Passing on the crucial information which might aid a investor to make quick bucks, would hardly come under realm of economic crime in India. It is high time that regulators in India (SEBI, IRDA, PFRDA, RBI) take a resolve to chase and punish those involved in cheating the investors. We have to learn from Harshad mehta and Ketan parikh scams of past and make sure that investors interest is not compromised.
Kudos to 'The Hindu' for this well thought out analysis. As you have said "Well designed and resolutely implemented regulatory legislation" allowing no scope at all fraud is needed. In this business, there is a thin dividing line between what is legitimate and what is not. And it is difficult to locate that line. Caution, is thrown to the winds and risk taking is notunoften appreciated. People who matter were too willing to part with sensitive information and Rajaratnam encashed such informations. Further CEOs of banks who are responsible for the bad economy and policy makers are protected instead of being punished. Where is the morality in gambling? People go to Casinos in Las Vegas and gamble. That is what the stock market is. Greed for money is the driving force. To digress from the main issue, I am at a loss to understand how far is any Government justified in tapping the telephone conversation of an ordinary individual, a man in the street? Where is the freedom for him? How far is it constitutional?
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