Hedge fund boss bang to rights on insider trading charges

Galleon founder Raj Rajaratnam has been found guilty on all 14 counts. Will he be the first of many?

by James Taylor
Last Updated: 19 Aug 2013
A big win for the US authorities in their latest crackdown on insider trading: Raj Rajaratnam, the founder of hedge fund Galleon, has been found guilty of all the charges against him in his high-profile trial. Unless he manages to get the verdict overturned on appeal, he could now be looking at 20 years in the slammer. It sounds like the evidence against him was overwhelming - but it's still a victory for the US Attorney Preet Bharara to make all the charges stick. Now the latter is turning his attention to the rest of the Wall Street - where he reckons this kind of stuff is 'rampant'. No kidding...

Given how much dirt the authorities seem to have got on Rajaratnam - who was accused of generating more than $45m in illegal profits by getting insider tip-offs on merger deals and earnings statements - it's amazing he even bothered contesting the charges. The court was played about 40 wire-tapped phone calls between the Galleon boss and his various informants, three of whom have already 'fessed up as part of a plea bargain (along with 16 others of the 26 people under investigation). It doesn't matter how many expensive lawyers you hire - and with an estimated fortune of $1.3bn, Raj could afford plenty of them - it's going to be hard to wriggle out of that one.

Rajaratnam sounds like a fairly unappealing character. An unnamed source quoted by the Times - which suggests his propensity to cut legal corners has been common knowledge for years - suggests he was a 'bully... a sociopath [who] genuinely believed that he could convince anyone of anything'. And while it's probably best to take this post-trial anonymous kicking with a pinch of salt, it's fair to say that characteristics like these aren't exactly unheard of on Wall Street. Or in the City, for that matter.

The Galleon boss may feel a little hard done by, in the sense that sharp practices like these are - to varying degrees – not uncommon in the world of high finance. And in that respect at least, his accuser would agree with him: it sounds like Bharara has been sufficiently emboldened by this victory to step up his crackdown on insider trading on the Street. He's charged 47 people in the last 18 months - more will surely follow until those concerned are persuaded to tidy up their act.

The other intriguing angle to this case is the involvement of former McKinsey boss Rajat Gupta, who is one of the people accused of passing Rajaratnam confidential info (from a Goldman Sachs board meeting, no less). That’s hugely embarrassing for McKinsey, a firm that prides itself on being seen as a beacon of trustworthiness and discretion in the highest corridors of corporate power. It’ll be interesting to see whether its reputation is damaged in the fall-out…

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