Galleon Case: Why Rich People Become Insider Traders
Of all the questions surrounding the insider-trading trial of Galleon founder Raj Rajaratnam, the least interesting is why his informants put their careers and freedom on the line to feed him confidential corporate information. As a matter of law, such motives are largely irrelevant, one attorney tells the WSJ:
"It's the question, 'Did you do it?' " he says, not if "you have a good intention or a bad intention. You passed it along to your mother because you love your mother-- So what?"As a matter of economics, meanwhile, the reasons for insider trading are often transparently clear. Rajaratnam paid former McKinsey consultant Anil Kumar $500,000 a year for sensitive info about his clients. When Kumar really came up with the goods, such as a tip that Advanced Micro Devices (AMD), which he was advising, in 2008 planned to buy rival chipmaker ATI Technologies, Rajaratnam upped the bounty to $1 million. Good doggie.
Other participants in the scheme had different motives. Former IBM exec Robert Moffat admits he leaked secret information about his own and other companies to an associate of Rajaratnam, ex-hedge-fund manager Danielle Chiesi, who duly passed it along. Why? Because Moffat and she were an item.
"Perhaps his ego got in the way by making him want to impress someone with whom he had become intimate. Perhaps he just wanted to seem knowledgeable and worldly," Mr. Moffat's lawyers said in the request to the judge.Moffat's pillow talk got him six months in a New York jail. Love stinks.
"So, can I buy now?"
A more salient question is whether the Galleon case underscores a new willingness by federal authorities to crack down on insider trading. That would be nice, but I doubt it. For prosecutors, such cases are often expensive, time-consuming and hard to prove. Resources at the SEC or U.S. Attorney's office in Manhattan are perpetually short, while major targets like Rajaratnam have the dough to hire the brightest legal minds. It's easy to lose.
Although perhaps not this time, since the government appears to have Rajaratnam dead to rights. Even a silky-tongued lawyer will struggle to explain away the wiretap recordings of the investor's conversations with his alleged co-conspirators. There's nothing coded or ambiguous here -- just direct talk about how to cash in. Here's an excerpt from an August 2008 recording of Rajaratnam speaking with Kumar, about AMD's planned acquisition of ATI:
Kumar: So yesterday they agreed on... at least, they've shaken hands and said they're going ahead with the deal.Wham, bam, thank you, ma'am. If only all perps were so obvious.Rajaratnam: So, can I buy now?
Kumar: Go ahead and buy.
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