The 11-year jail sentence on Sri Lankan-origin, fund manager Raj Rajaratnam for insider trading by a US court brings to the fore Sri Lanka’s own ways of dealing with this menace. “It just shows that however cocky you are (like how Rajaratnam was), the law will (ultimately) catch up with you,” noted Aritha Wickramanayake, a well-known corporate lawyer and corporate governance specialist.
On Thursday, Rajaratnam was handed the biggest ever sentence by a US court for insider trading, which New York federal Judge Richard Holwell called “a virus that needs to be eradicated.” According to an AFP news agency report, the sentence might have been higher had the judge not decided to take into account the accused’s need for an “imminent” kidney transplant. Rajaratnam, 54, was told he would be allowed to remain free until November 28, when he must surrender to start his sentence.
Mr. Wickramanayake told the Business Times that no matter what, there is always a trail (of the dubious transactions). “People think what they do in the past will go undetected,” he said adding that the recent penalties imposed by Sri Lanka’s Securities & Exchange Commission were based on transactions done a year ago.
K.C. Vignarajah, a former Chairman of the Ceylon National Chamber of Commerce and an investor pushing for a market free of insider trading, said while the US trader benefitted from paying research agencies to tip him off a few minutes or hours before an announcement, in Sri Lanka some families are privy to material information, days before it is disseminated to the market.
“Our insider traders and market manipulators should be getting a sentence which is 10 times more that what Rajaratnam got because what happens here is of a more serious nature, “ he said. “While the SEC is trying to instill some fear into insider traders and market manipulators, there is a need for a few to be given a stiffer jail sentence as a deterrent.”
The AFP report said that Rajaratnam was born in Sri Lanka and attended England's University of Sussex, where he studied engineering. He put that analytical mind to good use at the prestigious Wharton School at the University of Pennsylvania, where he graduated in 1983 with an MBA.
From there -- already well connected with other Wharton graduates -- he rose rapidly up the Wall Street ladder, with a specialty in high-tech stocks. And at the age of 34, he started his own fund.
In 1997, the Galleon group was launched. The hedge fund quickly amassed accounts through investments from Rajaratnam's ever-growing circle of contacts and friends. Rajaratnam appeared unstoppable, becoming emblematic of the new hedge fund culture, amassing $1.5 billion in personal wealth, according to Forbes, and managing $7 billion at Galleon at its peak.
But there was more than brilliance and a huge team of researchers behind that success. In 2008, prosecutors and the FBI began listening to wire-tapped phones used by Rajaratnam and associates in Wall Street's biggest insider trading probe, the news agency said.
“What they found was shocking -- and might well have stayed secret if not for the recorded phone conversations. Rajaratnam's job was to develop contacts and research companies, then read into the future of the market. Instead, he was being told the future before it happened,” it said.
Using his network, he discovered market-moving news before it had been made public, whether it was involving Goldman Sachs, Intel, Google or other big companies, then traded on the supposedly secret information and made tens of millions of dollars.
Prosecutors said these were not mere slip-ups in Rajaratnam's ethics, but part of a careful, coordinated strategy.
Rajaratnam was “born into privilege” and “rose to the top of the securities industry,” prosecutor Reed Brodsky said at the sentencing. Yet he ended as “the modern face of illegal insider trading.”There was a better side to the man everyone knew as Raj. In a world where the super rich routinely give money to charities, the convicted insider trader apparently really meant to help, whether it was victims of the Sri Lankan Civil War, of an earthquake in Pakistan or of the 9/11 attacks.
“The defendant's response to and care for the less privileged go considerably beyond the norm,” Holwell said.
But even if his sentence is less than half the maximum demanded by prosecutors, Rajaratnam's fate will serve as a grim example to others on Wall Street tempted to skirt the rules. “No one here or anyone running a hedge fund would wish to trade places with Mr Rajaratnam,” his own lawyer said according to the AFP report. |
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