The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

As the old proverb goes, "the fish rots from the head down."  How can we expect mid-level managers and the like to act lawfully and ethically when they see Mr. Gupta walking away with a slap on the wrist?

A product of the finest schools (the Indian Institute of Technology and Harvard Business School); the smarts to reach the pantheon of international business circles (Proctor and Gamble, American Airlines); entrusted to direct perhaps the most powerful financial company in the world (Goldman Sachs); and here he is blatantly passing what he had to know was inside information (to Raj Rajaratnam) from the hallway outside of Goldman's Board Room.  If it was a novel or movie, surely reviewers would say, "well-acted, but an implausible premise."

For a time it looked like the government was going to be satisfied with civil charges.  But U.S. attorney Preet Bharara and his team have made the right decision.  The strength of our financial system is grounded in trust and credibility.  No better way to protect that system than aggressively enforcing the law without fear or favor.  Directors of Goldman Sachs are not—cannot be—exempt.  Captains of industry must be treated no differently than the corner drug dealer.  As the old proverb goes, "the fish rots from the head down."  How can we expect mid-level managers and the like to act lawfully and ethically when they see Mr. Gupta walking away with a slap on the wrist?

We applaud Mr. Bharara for charging Mr. Gupta and look forward to seeing the evidence as it unfolds.

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It's one thing to cheat the securities markets—the "system"—by cajoling and paying friends for inside information.  Getting an edge.  It's done everyday in every walk of life.  In school, it might be taking a glance at your neighbor's test—just a glance—to confirm your multiple choice selections.  In sports, it might be taking steroids to make a long fly ball into a three run homer; with a little juice, next year's salary might just include another zero.  Or for the aging former ace pitcher who after losing his best stuff, hides a small dollop of Vaseline in his mitt so that when applied to his finger, the curve ball he had ten years ago once again confounds batters.  These things are wrong of course, and they should be punished accordingly.  And in the case of Raj Raratanam, the league's leading insider trader, he has been punished severely: 11 years' worth of punishment.

But what Nicholas Cosmo did was evil.  Pure, unadulterated evil.  He preyed on people he knew, people who (for whatever misguided reason) trusted him.  And he stole their money.  Not their extra money, not money they could afford to lose.  No, he stole their life savings.  Every penny in some cases.  These victims were hardworking people of middle income, who invested their entire life savings into Cosmo’s "company."

At an emotional sentencing hearing, some of those victims spoke out:

“I’m going to be working until they put me in the grave.” - Ellen Gabriel, Hairdresser, lost $130,000.

“There are times when we are lucky to be able to eat one meal a day... We were looking at making money, but we thought we were dealing with a legitimate businessman.” - Paul Priore, lost $25,000, currently on disability from a car accident and caring for a hospitalized father.

These folks and the others like them have not only lost their money, but in some sense their dignity and self-esteem.  They will wonder for the rest of their lives why they trusted Cosmo and made such an awful misjudgment.  They will live with the knowledge that they were somehow complicit.  They could have said no.  But that surely does not absolve Cosmo one iota.  His evil scheme was the catalyst.  He destroyed lives and he is being punished accordingly.

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Judge Richard H. Howell sentenced Raj to 11 years in prison this morning following his August conviction for securities fraud and conspiracy.  According to the New York Times, the 11 year sentence is the longest ever for insider trading, surpassing the 10 year sentence of Zvi Goffer, also a former Galleon trader (and just short of my prediction of a 15 year sentence back in August).

Deterrence matters. As a former Federal Prosecutor, I’ve seen the power that a stiff sentence and a prominent presence on the front pages can have on lowering crime rates.  Haynes & Boone white collar defense attorney, David Siegal expressed a similar sentiment: “One legacy of this case that Wall Street will be more careful about what they say on telephones than they used to be.”  Good.  We should hope that vigilance on the phone will spill over into vigilance when walking the line between aggressive fact gathering and insider trading.

The SEC can celebrate a job well done, but not for too long.  We need these investigators – who, for the first time in history, placed wiretaps on suspected insider traders – back out there catching bad guys.  Stay on the hunt. Stay on the front pages.  Rajaratnam made profits of more than $60M from insider trading…who is making $70M, $100M?

Insider trading affords the well-connected on Wall Street an unfair advantage over the average yet diligent investor on Main Street.  That, my friends, is unacceptable.  The regulatory agencies must remain on the watch, making sure the game remains fair – for everyone.

Assisted by Zachary Kady

Update (10/14/2011): Please enjoy the Newsy video coverage below.

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It’s a Hail Mary in a wind storm; meaning it rarely works.  And this case was no exception.

Just about anyone who goes to trial and loses seeks to have the Judge review the jury’s decision (especially someone with the Raj’s resources).  The hope – prayer really – is that the judge will find that that “no reasonable juror” could have found the defendant guilty on the evidence presented by the prosecution.

It’s a Hail Mary in a wind storm; meaning it rarely works.  And this case was no exception.  Judge Howell affirmed all 14 counts of the conviction in a carefully worded 28-page opinion.  The Judge made clear there was more than ample evidence for the jury to sink their teeth into and find Raj guilty:

"A reasonable jury could have found Rajaratnam guilty as to Count One [conspiracy] on the basis of Smith's testimony alone."

The manner in which Judge Howell ruled does not bode well for Mr. Rajaratnam regarding the all-important issue of sentencing.  The Judge has no doubt of his guilt.  I predict a prison sentence of at least fifteen years.  We’ll see in late September when sentencing is currently scheduled.

Come sentencing day, the immediate concern for Raj will whether he can stay home while he inevitably appeals his case to the 2nd Circuit Court of Appeals.  The process can take up to 18 months.  That will be up to Judge Howell and, based on the language of yesterday’s ruling, it doesn’t look good for Thanksgiving at the Rajaratnam home.

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At the CO we appreciate all of our readers' comments, especially those as insightful as one this weekend from Bobby Peters, a Superior Court Judge in Georgia.  I wanted to feature his comment, which was posted regarding my piece on whether Raj Rajaratnam should testify.  Please enjoy, and thank you Judge Peters.

"There are two things in life a person must do alone, die and testify. Once dead, you are dead. Once on the stand, your all alone without a lifeline, and you can't call a friend or stop the proceedings to get legal assistance on how to form your answer. As a Judge I have seen many cases lost with good people making bad attempts to sway jurors to the facts as they see them. There are many factors to consider on whether or not a defendant should testify. A salesman will believe he can sell anything, including his story to jurors; he only needs one sale out of twelve for a hung jury. But you cant under estimate the common sense of those common folks. Thanks for the article, it was interesting. Bobby Peters, Superior Court."

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While hardly a long shot, we predicted this result way back in March:

Mr. Dowd and his cast of subordinates (when you represent a billionaire facing prison you can’t possibly bill enough hours) will try mightily to argue the technicalities of what constitutes criminal insider trading -- but my money is on the government and its young team of prosecutors.

Raj was just a bit too greedy, a bit too brazen, and in the end a bit too careless. While his was a clear case of insider trading (as noted by Juror Lauren, “there was just a lot of evidence”), many who walk the rarified halls of Wall Street are behaving in ways that are not too dissimilar. Where precisely is the line between aggressive fact gathering and illegal insider trading? It’s difficult to determine because in many cases it is a matter of degree not substance. The advent of social networking tools will only complicate matters.

As a former Federal Prosecutor, I can tell you though -- deterrence matters. Long jail sentences have a chilling effect. The threat of jail will change behavior. Prosecutors need to keep at it. Stay on the front pages, bring more cases and demonstrate that while there are shades of gray around corporate conduct -- there is a line that if crossed means you too may be on your way to jail; and when that line is blurry you best stay well to the
legal side.

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Waiting for the jury to come back with a verdict is in many ways harder than trying the case.  There is just nothing you can do.  So you worry, and you scrutinize just about every strategic and tactical decision made before and during the trial.

As the jury enters its second week of deliberation, each such decision is seen in the worst light possible.   A lot of: "Why did we do that?  Why did we introduce that witness?"  You replay your closing argument... over and over again: in the shower, in the subway, on a bus.  You think of all the clever phrases you should have used... "oh that would have been a winner," but alas your only audience this time is your faithful dog who must listen while you finally have the time to take her for a walk.

Two weeks is not unusual for the jury to deliberate in a case of this complexity.  But with each passing day, Raj and his team's spirits rise, while the prosecutors ask themselves what is going on?  "The case was so strong.  Is it just one holdout or did we lose the jury."

The smart bet remains on conviction, but you never know.

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Reasonable doubt is one of the more difficult concepts in criminal law.  If my memory from my days as a prosecutor serves me correctly, the Judge will instruct jurors that it is a doubt based on "a reason." Rather circular but it makes sense.

Reasonable doubt.  It seems attorney John Dowd is left with that amorphous standard to keep his client out of jail.  When a defense attorney relies on reasonable doubt they are in trouble.  Surely it brings a smile (albeit hidden) to the prosecutors lips as they sit politely and listen.  They know if the defense was strong, they would be pounding on the facts and not what to many laypeople is a technicality.

Reasonable doubt is one of the more difficult concepts in criminal law.  If my memory from my days as a prosecutor serves me correctly, the Judge will instruct jurors that it is a doubt based on "a reason." Rather circular but it makes sense.  It must also be a reason that is supported by or flows from the evidence.  It is not a doubt that is fanciful or irrational -- such as "Lloyd Blankfein took over Raj's mind and body and instructed him to make the trades to take pressure away from Goldman."

Here Raj can point to a couple possibilities for establishing a reasonable doubt based on the evidence.  One, that government witnesses, hoping to avoid jail, lied.  Two, that the information they are calling "insider" was public and just part of the "mosaic" of information available to the hardworking managers at Galleon (snicker, snicker).

I'd put the chances of a "not guilty" verdict at 100 to 1.  But juries can do some strange things.

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In an effort to illustrate that the “inside information” obtained by Mr. Rajaratnam was largely irrelevant, the defense called to the witness stand University of Rochester Business School Professor, Gregg A. Jarrell, a frequent expert witness (for both prosecutors and the defense).  Professor Jarrell testified in detail on how trades executed by Mr. Rajaratnam could have instead been based on publicly available research.  Developed at great expense, to be sure, the overarching purpose for the testimony was to create for the jury "reasonable doubt".

As we all know from experience or the movies, the prosecution must prove guilt beyond a reasonable doubt.  What that means is one of the most difficult questions in criminal law.  Somewhat illuminating is a standard jury instruction that as I recall states in part that reasonable doubt is "a doubt for which you can supply a reason." In other words, if a juror is faithful to the court's instructions, they cannot say... "Oh I have a doubt, I just do.  I have no reason to support my doubt though. "

In this trial that reason is Professor Jarrell's testimony and his fancy powerpoint -- at least that is the hope of John Dowd and his team.  Although unlikely given the weight of the government's case, a lone juror (it only takes one) could say, my reason for having a reasonable doubt is the testimony of Professor Jarrell.  He told us that there is another explanation and I have a reasonable doubt based on his testimony -- that's all it is.

In my view, the jurors will not so easily be diverted from the mountain of evidence submitted by the government, much presented by Rajaratnam himself in audiotape recordings.  Although polished and professorial, Professor Jarrell cannot defeat a very strong government case.

But the defense had to do something.

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As the defense begins to present its case to the jury, we must keep in mind Mr. Rajaratnam's best hope for freedom is not in this courtroom but rather a more august forum: the United States Court of Appeals for the Second Circuit. There Raj has a shot -- albeit a long shot (think three point line and move back ten steps) -- to convince the appellate court that the audio tapes that have been so damning should have been disallowed because of prosecutorial misconduct.

But Mr. Rajaratnam has one card to play. Take the witness stand. As a federal prosecutor, I tried many a criminal case and I can tell you that juries are not easy to predict. You might think the evidence is overwhelming. Throughout the weeks of trial you're certain you've seen what appear to be knowing smiles from the jurors as they took their seats only a few feet from your table in the courtroom. And then bam, surprise! They are deadlocked, or worse they have voted for acquittal. And in your cloud of dismay and second thoughts, you talk to them after the trial and learn to find they have constructed the most preposterous theory of the evidence. Usually, one or two jurors have taken a random fact and a throwaway judicial ruling to concoct a theory for a finding of not guilty. In your post trial shame, you wonder if they were even present at the same trial.

Mr. Rajaratnam does not look evil. He is corpulent and seems like a nice fella to share a drink with and discuss the latest ... ummm ... corporate gossip. Yeah. Play that up. It was just a bunch of friends gossiping. Is this the face of a felon? In the end most juries are smart, sober and rational. They will take their responsibilities seriously and follow the court's instructions, but once in a while, when you least expect it, they will surprise you.

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The government has rested.  The jury has heard scores of taped conversations and a mountain of documents and other materials have been presented to the jury and introduced into evidence.  Unlike most cases involving fraud and financial misconduct, where juries must piece together varying degrees of circumstantial evidence gleaned from documents alone, here the jury has direct evidence.  Raj’s voice: kidding, cajoling, prodding, and insisting on obtaining inside information from his “friends” on the inside.  All told according to the FBI agent who was the last witness to testify for the government, Raj earned over $60 million from trading on inside information.  That’s a big number.   It doesn’t look good for this … well … corpulent and rather cuddly bad guy.

What does he do?

On Monday, it’s the defense’s turn.  Mr. Dowd, Raj’s lead counsel, can stand and with as much righteous indignation as he can muster, state in a loud clear voice, “the defense calls NO witnesses”.  That’s what Barry Bond’s high-priced team has chosen.  The bet underlying that tactic is that the jury is skeptical of the government’s case, and the defense argues that under the Constitution, yes that Constitution, a citizen ACCUSED of a crime need not prove their innocence.  All they must do is demonstrate that the government failed to meet its burden of proving its case beyond a reasonable doubt. 

Hmmmm.  From what I’ve seen, that’s a non-starter here. The government’s case is just too strong.  “What’s the best strategy then, Mr. Former Federal Prosecutor?”

I’d say you have to put Raj on the stand.  First, he’s hardly a threatening presence.  He’s a big teddy bear.  He is smooth and persuasive.  It only takes one juror to be seduced by his charm to keep him from what will more than likely be a long stay for him at a federal penitentiary.   Second, remember he is the “tippee” not the “tipper”.  What?   Yes.  The tipper is the “insider”.  In this case there were many.  Most notably was the Director of Goldman Sachs who literally called Raj from outside the Board Room with inside information on proposed mergers.  Raj can try to argue that all these “tippers” are the real guilty parties and they are merely trying to save their skin by implicating Mr. Rajaratnam.

Will that work?  Probably not.  And as I’ve written before his best shot is going to be to appeal the court’s decision allowing the taped conversations into evidence despite rather sloppy, if not worse, conduct on behalf of the government in seeking the warrants necessary to wiretap conversations. 

 We’ll know come Monday. 

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Behind the scenes at the Raj Rajaratnam trial is the story of the wiretaps.  In a recent thoughtful article on the New York Times' Dealbook, Law Professor Peter Henning highlights the raging battle between prosecutors and the defense team over the admission into evidence of hundreds of hours of wiretaps.  Those fuzzy but telling recordings show Raj himself, in effect testifying about the acts that… well… constitute his guilt.  It is his voice, his demeanor, his personality chiding and prodding along a massive fraud, and all that in the first person.  But as Professor Henning points out, this all-important evidence was challenged and nearly disallowed by Judge Holwell.  He was particularly troubled by the government's omission of facts in its application for the warrant to obtain the wiretaps:

"The court is at a loss to understand how the government could have ever believed that Judge Lynch could determine whether a wiretap was necessary to this investigation without knowing about the most important part of that investigation — the millions of documents, witness interviews, and the actual deposition of Rajaratnam himself, all of which it was receiving on a real time basis and all of which was being acquired through the use of conventional investigative techniques."

Prosecutors may have gotten just a bit too greedy in this one.  They need to be conservative and beyond reproach.  Their job is not to win cases, but it is to a higher calling.  As the Supreme Court famously said over a generation ago, they are empowered to do justice.  In some cases that might mean walking away from even the strongest of evidence.  The Constitution and the system demand no less.

So as the trial plugs along for several more weeks, remember that Raj Rajaratnam’s best hope for freedom may rest with an appellate court, years after the trial has completed.  By then, the hundreds of hours of wiretaps will be silent and stored in some dusty, cavernous government warehouse.

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I wonder what the jury was thinking?

In his testimony, Mr. Blankfein at one point provoked laughter from the gallery when a prosecutor asked him why it was unusual that the company was losing money in the middle of the fourth quarter of 2008.

"We generally make money," he said, with a big grin.

-          Wall Street Journal, March 24, 2011

Here is Lloyd Blankfein on the stand grinning about making money, to the approval of the gallery.  I fear my comments yesterday, doubting the wisdom of using such a high-profile witness unnecessarily, may be proven correct.  Sure, the jury was listening; he’s the CEO of the most successful bank on Wall Street.  He reportedly received a $100 million dollar bonus this past year.  But the prosecutors’ job is to keep the focus on convicting Raj Rajaratnam’s of insider trading, and not divert that attention with celebrity witnesses.

And who could blame the jury?  Sure they have all those “secret tape recordings” to wade through, but in walks an all-star of Wall Street.  One of the most influential—and apparently personable—CEOs of the financial world is mere feet away in the courtroom; it is hard to imagine focusing solely on the issues at hand.  If Cal Ripken Jr. testifies at the Barry Bonds perjury trial, will the jury’s focus really be on what he says, rather than who he is and what he accomplished?

It is only natural for the jury to be distracted.  Mr. Blankfein’s presence overshadows the courtroom dynamic of prosecution versus defense.  Although I was not in the courtroom, it also seems as if the jury could take away the conclusion that this is all about making money and Raj, Lloyd and Mr. Gupta are all just trying to get their piece of the pie.

Assisted by David Martin

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Presumably, the prosecution reasons that it is powerful evidence to hear Goldman’s CEO confirm that the phone call “violate[s] Goldman Sachs’ confidentiality policy.”  Bad decision.

Today federal prosecutors called Goldman Sachs CEO Lloyd Blankfein to the stand to testify against Raj Rajaratnam, in what is being called the insider trading case of the century.  As a former federal prosecutor, I have previously commented on the outlook of the case, the government’s strategy for prosecution, and the first round of testimony.  Today, I express my doubts about the wisdom of calling Goldman’s CEO to the stand.

What you want the jury focused on is the substance and atmosphere of the taped conversation between Gupta and Rajaratnam.  The chronology is right out of the movies.  Gupta, a respected Goldman Board member, immediately upon leaving the Board Room, passes along highly confidential knowledge of Goldman’s acquisition plans to Raj.  Federal prosecutors use Blankfein’s testimony to confirm that the information in the call was confidential, and thus was illegally communicated and obtained by Rajaratnam.  Presumably, the prosecution reasons that it is powerful evidence to hear Goldman’s CEO confirm that the phone call “violate[s] Goldman Sachs’ confidentiality policy.”

Bad decision.  The glare of the jury’s scrutiny and hopefully its wrath must remain on Raj.  A high-profile witness, however, has the potential to distract and confuse the jury.  Never underestimate the imagination of a jury, particularly one involved in a long trial.  They will ponder the littlest of details and conjure up all kinds of theories.  You don’t want that, particularly in a case this important.  Sure, it looks powerful to call the CEO of Goldman to the stand, but isn’t that using a sledgehammer to crack a nut?  Any senior executive or compliance officer could have made the same point.  Drawing attention to the content of the illegal conversation rather than the person giving the testimony should have been priority one.

Put it this way: if Goldman Internal Compliance Officer John Doe had testified instead of CEO Blankfein, the New York Times’ headline could have been: Secret Tape Records Gupta’s Guilty Call; instead it was: Blankfein: Gupta Broke Confidentiality.  Doesn’t the first suggestion focus a bit more on the point?  Yet with the company CEO testifying you can bet the jury’s mind was in the same place as the Times’. Who knows what they will make of it, and if the defense is smart they will try to exploit the Blankfein appearance with seeds of conspiracy and anything that may divert the jury from the acts of Raj.

Assisted by David Martin

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Mr. Rajaratnam and his legal team sure have their work cut out for them. These audio tapes are devastating. They have, as we prosecutors and former prosecutors have often said, "the ring of truth to them". Of course people are going to be nervous about trading on insider information. Remember, for the most part this gang of co-conspirators were law abiding citizens. Indeed, they were highly successful members of the business community. They saw what happened to Martha Stewart. You trade stock around a merger or other material event and those boys from the SEC or worse yet the FBI will come knocking and you better have a good story to tell.

Raj understood that anxiety so he was there with advice and comfort. Coaxing his contacts along, making sure everyone stayed on the reservation. Mr. Dowd, Raj's defense attorney and his large team of partners and associates and paralegals will have to pull a rabbit out of their hats to rebut this testimony. I sure hope for their sake they received a large retainer, Because in Federal Prison, Mr. Rajaratnam will be making far less than minimum wage.

But it ain't over till the fat lady sings -- plenty more tapes -- witnesses and then the defense. Stay tuned, although highly unlikely, I think Raj takes the stand. He'll have no other choice.

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Win over the jury early.

The government is off to a fast start.  No need to wait or to call a bunch of technical witnesses to lay a foundation for your claims.  The time to win over a jury is early; the sooner the better.  If you wait until week 8, for example, many of the jurors will have already tuned out or made up their mind (right or wrong) and they are unlikely to consider new testimony.  Their heels are dug in.  They figure that if the government waited two months to present the evidence, it can’t be that important.

Following that strategy, batting lead-off, instead of at number three or four, is Raj’s friend from the Wharton School of business, Mr. Anul Kumar.  (Technically, the government’s first witness was a Special Agent for the FBI who authenticated the audio tapes that lay at the heart of this case).  Mr. Kumar dispassionately explained how the defendant offered him $500,000 per year for inside information.  Moreover, Mr. Kumar explained how the defendant advised him to open a Swiss Bank account so those funds could be hidden from regulatory scrutiny and his employer.

Cross examination of Mr. Kumar by the defense will begin next week, but don’t expect some television-like reversal of his testimony.  He is no doubt a very smart man who has been well prepared by the prosecutors.  And worse for Mr. Rajaratnam, the jury has the weekend to let the testimony of this important witness sink in.

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Forget the theatrics of the opening statement.  Most cases are won or lost before trial.

As trial lawyers (I was an Assistant United States Attorney in Washington, DC from 1990-1994), we like to think its going to turn on our ability to charm the jury; command with the eloquence of Daniel Webster and folksiness of a young Abraham Lincoln (sans beard) appearing in a small-town courthouse somewhere in rural Illinois with a quote or two from the Bible and a story at the ready.  Nope.  Most cases turn on a legal ruling pre-trial.  This case is no different.

Over the strenuous objections of Mr. Rajaratnam’s attorney John Dowd, Judge Howell allowed the prosecution to introduce 2700 taped conversations.  Those conversations will put Mr. Rajaratnam in the center of a web of corporate corruption and arrogance that the jurors will not be able to wash from their minds.  He will more than likely be found guilty of something.

Mr. Dowd and his cast of subordinates (when you represent a billionaire facing prison you can’t possibly bill enough hours) will try mightily to argue the technicalities of what constitutes criminal insider trading -- but my money is on the government and its young team of prosecutors.

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$990,000.  Are you kidding me?  Why is this even in the paper?

1) That’s the amount involved in the latest insider trading story coming out of Wall Street – the Journal’s front page – above the fold – headline Feds Accuse P&G Director (The New York Times had it at Former Goldman Director Charged With Insider Trading).

2) The illegal conduct emanated from outside a conference room of Goldman Sachs. Yes, that Goldman Sachs.  As if they didn’t have enough illegal conduct inside the conference room (but more on that later).

3) In the parlance of the securities world Mr. Rajat Gupta was the "tipper".  And get this: a Director of Goldman and Proctor and Gamble.  Yes, a company that actually makes something.  And former Chairman of McKinsey and Co., the Porsche of management consultants.  A top brand of very smart people; not the usual M.O. of an inside trader.  Hmmmm.

The tippee?  None other than the infamous Raj Rajaratnam.

Wow.  This is exciting stuff.  But why?  Why would someone at the pantheon of American business (Gupta) trade a few secrets to a “friend” (Rajaratnam) for peanuts, for tip money?  Something else is going on here.  I don’t know what it is; maybe it's as simple as it sounds, but maybe not.  I’m no conspiracy theorist, but when they ever so stridently tell you to look to the left, you owe it to yourself to at least peek right.

I think the prominence given this tiny transaction, although intriguing, must not let us lose sight of the big picture (in June 2008 the outstanding value of Over the Counter derivatives alone topped $650 trillion – that's TRillion with a T-R – roughly 650,000 times the amount of the alleged violation).  These characters are not the real culprits of Wall Street’s trillion dollar pecidillo.  They must not become the faces of the profoundly selfish conduct of many.  They almost succeeded in destroying the economy.  And for once I am not overstating things.

The politicians, the press and I suppose the people need someone to blame.  Well here they are folks: Rajat Gupta and Raj Rajaratnam.  They did it.  Front page.  And look, we got Goldman too – well sort of.  “Chew on this story for awhile America.  Damn that Ferguson and those liberals in LA who granted him that silly Oscar statue for defaming us.  All the publicity must be refuted with a screenplay of our own.  We can even go international.”

But folks hold your ire.  These are not the guys.  Trust me, they are not the one’s.  They may be interesting and you can bet the media will make them even more so but they are not the guys.

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PSSSSSSSSSSSSTTTTT. Quiet. “You know that insider trading case against Galleon Group and Raj Rajaratnam?” (say that ten times fast) Drum roll please: a whistleblower is behind it. Yep. Shocked I bet. Rajaratnam who had a bevy of connections, likely thought he had everyone fooled. Nope, he missed someone – someone he underestimated. Someone now who, as they say, may have the best chance of leaving the court that one final time through the front door. To the glare of sunlight, the warmth of the expanse and a stone’s throw to a martini awaiting at the Capital Grill around the corner. Beats the back door, and an odyssey of sorts with 35 others in matching jump suits – I believe orange these days – to a waiting school-like bus that ain’t goin' to school.

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For too long, Wall Street insiders have made fortunes based on who they know. Perhaps that’s just the way business works, but it is critical for financial markets to be better...Expand this investigation. Push it to the limit.

Federal prosecutors accused hedge fund manager Raj Rajaratnam and five others of using insider information to accumulate more than $20 million in profits. 

Sadly, this latest news comes as no surprise. For too long, Wall Street insiders have made fortunes based on who they know. Perhaps that’s just the way business works, but it is critical for financial markets to be better. To increase stability and fund growth, they must operate with the utmost integrity. The arrest of Raj Rajaratnam, particularly with his A list of confederates (from Intel, McKenzie and former Bear Stearns employees) make us question that integrity. Indeed, many on Wall Street have had a few sleepless nights since Mr. Rajaratnam’s arrest. And that’s a good thing.

Our financial markets to a large degree operate on faith and trust. Without that trust, Main Street investors (and worse yet, the Chinese) would likely flee for the exits. Why would you want to put your money in a market rigged to profit the rich and connected at the expense of the average investor? The US markets are still the safest in the world and they must stay that way. Everyone needs to play by the same rules. Surely we are not naïve. Insiders of one kind or another will always have an advantage—but that advantage must be constantly challenged.

Let’s applaud the SEC and law enforcement officials. But their hard work must continue. Expand this investigation, push it to the limit. Federal prosecution and the potential threat of jail time make for powerful deterrents. If the SEC and other government officials can keep up the pressure, Main Street should sleep easier.

Assisted by Jess Begen

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