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.

More In: Editorial | Opinion