Reply #8: Wall Street, Held Accountable EDITORIAL NYT

[Demeter]

http://www.nytimes.com/2011/05/12/opinion/12thu1.html

The jury in the illegal insider trading case against Raj Rajaratnam, the billionaire founder of the Galleon Group hedge fund, did what the government has largely failed to do: hold a major Wall Street figure accountable for his reckless behavior. It is an important step toward restoring trust as a prerequisite of America’s financial markets...Mr. Rajaratnam is by far the most prominent of the 36 found guilty in an extensive crackdown led by Preet Bharara, the United States attorney for the Southern District of New York. (In all, 47 have been charged.) He was convicted on all 14 counts against him, of securities fraud and conspiracy to commit it, and he could face up to 19 1/2 years in prison and tens of millions of dollars in fines.

The classic insider case involves one person tipping another in individual transactions. Mr. Rajaratnam created a network of tipping networks that seemed cynically designed to go to the edges of the law on obtaining insider information without breaking it. By providing him with a mosaic of information from many sources, his defense contended, no single source or piece of information was material to a decision to invest even though, added up, they gave him a vital edge as an investor...The prosecution countered that by focusing on five of his many sources, relying primarily on testimony of three and wiretaps of four and their gossipy, shameless and illicit phone calls with Mr. Rajaratnam. A prosecutor summed up, “Cheating became part of his business model.”

The crimes he was tried for began in 2003 and ended in 2009, a period when markets were out of control. Had he been acquitted, Americans might have concluded that it was O.K. for an insider to play the markets as dishonestly as he did because they are basically rigged.

Thirty years ago, America’s financial markets weren’t perfect, but the exposure of market manipulation by Ivan Boesky, Michael Milken and others was shocking because their insider trading was so unexpected. The corruption felt like an anomaly in the world’s best markets...Now our markets remain opaque and of disputed trustworthiness. It’s common to sniff illegal insider trading, but hard to prove it in court because it requires proof of intentional or knowing wrongdoing. Prosecutors must show that trades were based on material, nonpublic information knowingly used...Mr. Rajaratnam tried to disguise those tips, but the government showed that he got illegal, material, nonpublic information by illegal means, and used it to make tens of millions in criminal gains.