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Case Study on Raj Rajaratnam Insider Trading At Galleon Group

Raj Rajaratnam Insider Trading At Galleon Group

Insider trading is an issue that has been quite rampant in the current business market. Crackdowns to pick out those involved in breaking business ethics have been helpful. The case of Raj Rajaratnam is one of the widely acknowledged incidences to date. Raj was found guilty of all 14 counts against him in the widely known case of illegal stock-tipping.

Raj Rajaratnam is a Sri Lankan American billionaire founder of the Galleon Group a hedge fund management firm. On October 16th 2009, Raj was arrested by the FBI on allegations of insider trading- a process of trading a public company’s stock or securities by an individual who has access to private information about a certain company. His actions led to the closure of the Galleon Group. On May 11, 2011 he was found guilty on all 14 counts of securities fraud and conspiracy.

The trial cases as a result of rampant crackdown on insider traders who were ruling the Wall Street, a promise madeImage 2 by Manhattan U.S attorney Preet Bharara. Prior to his arrest Raj Rajaratnam had claimed that Galleon analyst had an advantage over its competitors because most were trained as engineers and only focused on research.  Adam smith, a former Galleon trader gave evidence at the Raj’s trial stating that the new York-based hedge fund grew its advantage through other means.

Raja emphasized that he was learning of revenue figures before they became public. Intel Corp. [INTC], Intersil Corp. and other publicly traded companies were some of the insiders and attested to the information provided by Adam Smith. In his testimony Smith stated that, research was sort of conducting homework ahead of time. He pleaded guilty of insider trading and agreed to cooperate with prosecutors. He further added that, getting the number was just more than cheating on the test presented.

The Raj Rajaratnam case was exclusive in the sense that, the prosecutors wiretapped their targets conversations through the phone a tactic used in crime investigations. 40 recordings of Raj were heard by the jurors and in some of the recordings he was heard gathering secrets from his confidential sources.

One of his sources revealed that, Akamai Technologies Inc. was going to lower its forecast. Raj Rajaratnam used inside information obtained from his sources to trade ahead of any public announcements that were to be made on forecasts, earnings, mergers or any spinoffs involving dozens of companies.

Rajat Gupta, the director at Goldman Sachs, and Kamal Ahmed, a Morgan Stanley banker passed tips to Raj through Adam Smith.  The CEO of Goldman Sachs Lloyd Blankfein said that Gupta violated the company’s confidentiality by telling Rajarantnam about the company’s earnings and its strategic plans.

This was the most widespread and paramount case in US in the fight against insider trading. The case led to arrest of more business personnel who have violated the insider trading rules and ethics.  For the prosecutors, it did or does not matter whether you are a paramount figure in the society or not. All arrests made have been handled appropriately to set a good example in the country and in the business sector.

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