Monday, October 19, 2009

 

First of the Day: Wiretaps used to reveal insider trading

Federal prosecutors on Friday unveiled a broad criminal case against billionaire hedge fund manager Raj Rajaratnam and five others accused of netting more than $20 million in profits by trading based on inside information about the stocks of Google and other companies.

Prosecutors described the case as a new, aggressive phase in the government's pursuit of financial crime. It is the largest insider trading case ever involving a hedge fund, and the investigation for the first time used wiretaps to obtain evidence of insider trading.

"As the defendants in this case have now learned the hard way, they may have been privy to a lot of confidential corporate information, but there was one secret they did not know -- we were listening," said Preet Bharara, U.S. attorney for the Southern District of New York. "Privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?"
....

All were arrested Friday by the FBI. Rajaratnam's bail was set at $100 million.

—Zachary A. Goldfarb reporting in "Insider trading case ensnares six"


And then we have this—

With net worth of $1.3 billion, Rajaratnam is on the Forbes list of the richest people of the world -- and he's apparently the wealthiest Sri Lankan. He runs Galleon Partners, based in Manhattan. Prosecutors charged him with 13 violations of securities law, which could put him in jail for life.

Aside from the "firsts," questions and uncertainties raised by this report are of some interest—

Questions a reporter might ask

  1. Aside from Bernie Madoff, how many billionaires has the U.S. sent to jail?
  2. As the richest citizen of Sri Lanka, what are the diplomatic implications of arresting and charging Rajaratnam? There are undoubtedly a host of Sri Lankan politicians and civil servants depending upon Rajaratnam for payoffs. What will become of their children?
  3. Are there any immediate indications of capital flight from U.S. markets by corporations or other entities under the control of non-U.S. citizens since this news broke?
  4. Which bank has the privilege of holding Rajaratnam's $100 million bail and is it FDIC-insured in case the bank fails?
  5. Does the Justice Department anticipate the need to bug corporate dining rooms? And will executives turn to throw-away cell phones for their important communications?

12:05 pm — Katherine Burton and Saijel Kishan clarify the bail situation. It will be less of a boon to some bank than first appeared—

At the hearing, U.S. Magistrate Judge Douglas Eaton in Manhattan set Rajaratnam’s bail at $100 million, to be secured by $20 million in assets and guaranteed by his wife and four others.
Still, if the assets consist of cash, $20 million would make a rather nice deposit.

Related post
Equivocal Headline of the Day: Why the Austrian economy failed (6/04/09)

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