The Galleon rules

October 19, 2009

The message for Wall Street coming out of the Galleon Management insider-trading prosecution is this: It’s no longer enough to watch what you write, but now you’ve got to watch what you say.

One of the more notable things about the insider trading case against Raj Rajaratnam, the co-founder of Galleon, is the heavy reliance by federal prosecutors on evidence gathered through taps placed on his cellphone.

Authorities also surreptitiously listened in to phone conversations of some of the other defendants and confidential informants in the two-year-old investigation.

Now wiretaps are the stuff the feds often rely on to go after organized crime or even corrupt politicians. Generally, authorities are loath to use phone bugs in pursuing financial crimes because of the possibility of invading the privacy of innocent investors and customers, who simply happen to do business with a rouge broker or trader.

But the Galleon case may demonstrate that the ground rules for pursuing financial crimes are changing and taking on a more aggressive posture.

The decision by investigators to seek court permission to tape phone calls could be an attempt by authorities to send a stern warning to Wall Street that no form of communication is safe for sharing non-public information with the intent to profit from it.

If there are other hedge fund managers engaging in the same kind of unlawful behavior that Rajaratnam is accused of, you can bet the smart ones are staying off their phones — at least while the heat is on.

But the move by prosecutors to start tapping Galleon’s phones may be an indication that some of the bad guys on Wall Street are finely getting wise to the danger of email and the ability of prosecutors to convict them with their own written words.

For years now, many a broker, analyst or hedge fund manager has been tripped up by private thoughts conveyed in an email that don’t jibe with what they were publicly telling investors or clients.

Indeed, former New York Governor Eliot Spitzer, before getting laid low by a prostitution scandal, made his political career by rifling through the emails of Wall Street investment firms as state attorney general. Potentially incriminating emails are some of the strongest evidence federal prosecutors have against two former Bear Stearns hedge fund managers currently on trial.

But the Galleon criminal complaint filed by federal prosecutors in New York is thin on incriminating messages or comments gleaned from emails shared between Rajaratnam and the confidential informants who brought down the hedge fund magnate.

It’s possible those incriminating emails will surface down the road, after prosecutors dig deeper into this case. Or maybe Rajaratnam is one of those rare people who prefers to do all his business either face-to-face or over the phone, in order to avoid leaving behind a trail.

In the end, however, it doesn’t really matter what motivated prosecutors to employ wiretaps to catch a big hedge fund fish. The bottom line is the feds have just seriously raised the ante in going after Wall Street’s rogues.

Comments

Good. These low-lifers living rich should all spend their lifetime in prison. They are the worst of the worst in this world. They go to their MBA schools to learn to be dishonest.

Posted by Frank Vel | Report as abusive
 

actually educators at MBA and other institutions of learning are teaching them to be dishonest, lay hands on peoples moneys etc. I have long advocated banning of
hedge/mutual funds but no one seem to be listening me.
One’s money is safe in one’s hands and not in the hands of
funds managers; if one is stupid enough to trust fund
managers, I wander how one made money being stupid. STOCKS
are the only safe place for investment bec stockmkt is open
ALWAYS ALWAYS. Whenever you want to buy/sell any stock you
just rely on the screen showing the prices, one is in TOTAL
control of one’s destiny holding stocks. Opposite is true
in case of hedge/mutual funds

Posted by jjmk4546 | Report as abusive
 

frank vel is absolutely right,

our education system impart knowledge how to make profit,

but not how to be honest and doing ethical business like

Tatas , Narayan Murthy in india or Bill gates in US with

social responsibilities.

economic fraudsters are worst than terrorist.

as these are the people feed terrorist and mafias.

rashmi shah

Posted by rashmi | Report as abusive
 

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