I am very happy Raj Rajaratnam was found guilty of all counts of securities fraud and conspiracy. For this is a great day for integrity, fairness and confidence in the financial markets. It sends a loud message to all those Wall Streeters who straddle the line and dart in and out of illegal activity that the jig is up. They know who they are. We in the media know who they are, although we can’t name names until we have conclusive proof.
Wall Street has heard loud and clear that the grown-ups at the Justice Department and the Securities and Exchange Committee are in fact in charge and they will hit you with a ton of indictments if you cross that line.
We now won’t hear the libertarians preach why insider trading should be legal because it is a victim-less crime, or that the free market would ferret out the violators.
There are now clear rules for trading on material non-public information and prosecuting those who violate those rules. Justice has been served. The average investor who thinks the deck is stacked in favor of Wall Street’s cocky hot-shots can confidently believe the cops on the beat are watching. Of course, the deck will still be heavily stacked in favor of Wall Street’s cocky hot-shots, but at least they will think twice or three times about engaging in insider trading.
This case is also significant because Wall Streeters now know the Feds will use wire taps to investigate insider trading.
“Rajaratnam was among the best and the brightest – one of the most educated, successful and privileged professionals in the country,” said Manhattan U.S. Attorney Preet Bharara, in a statement. “Yet, like so many others recently, he let greed and corruption cause his undoing. The message today is clear -- there are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have. Unlawful insider trading should be offensive to everyone who believes in, and relies on, the market. It cheats the ordinary investor, victimizes the companies whose information is stolen, and is an affront not only to the fairness of the market, but the rule of law.”
If you lost your count, in just over 18 months, Bharara’s office has charged 47 individuals with insider trading crimes. Rajaratnam is the 35th person to be convicted.
And in case you don’t think this verdict is a big deal, imagine what would have happened had the jury acquitted Raj?
Those cocky, swaggering Wall Streeters would have smugly said “I told you so” and aggressively discredited the “ideologically driven” prosecutors and their “agendas.” They would have hailed the acquittal as a victory for the free market, for Wall Street in general. And they would have warned had the verdict gone the other way it would have further hurt the global stock markets.
Now some Wall Streeters are worrying about information flow drying up as a result of the verdict. Of course, they said the same thing when Regulation Fair Disclosure (FD) was instituted a decade ago.
But in reality, information flow did not dry up after Reg FD. Selective information flow to most favored analysts/investors dried up.
But, company management and investor relations folks still speak to investors and analysts on a regular basis. They still provide guidance on earnings and other metrics. They just don’t communicate it to one or two favored people at the exclusion of all others.
Folks, this is a great day for the confidence in the markets.
Will insider trading go away altogether as a result of the verdict? Of course not. But you can bet many many people who are inclined to obey the law and avoid prison are going to think several times before they share or act on material, non-public information.
