The prosecution of Rajaratnam began today, about an hour ago, with him ushering in an entourage of legal advice that would make OJ Simpson envious.
If you missed this, the man was guilty of pushing insider information, sometimes literally seconds after he found out about it.
Look, the guy is obviously guilty; I don’t think anyone in their right mind could possible defend this guy. Obviously, that statement is excused when talking about the seven lawyers who are even now attempting to do just that.
The real problem here is going to be the impact it has on the intelligence industry (and perhaps that includes the news). Having seen bits and pieces of the precursory raids up until now, it looks like the Feds are getting ready to try and charge every semblance of data sharing and intelligence gathering the hedge fund industry employs, which in my mind is not a far cry away from, “if it isn’t available on public sources, then you can’t know it.”
Perhaps this will be handled with tact and care; if this is just about crushing industry insiders who are front running their own announcements, or letting “special best friends” do the same, then so be it. But I have a hunch based on some of the hits before now, which have been including experts on hedge fund payrolls, that this is more about that rusted notion of a “level playing field.”
The US Government and supporting agencies have long had a peculiar public prejudice against hedge funds, which shows most vibrantly when the number of verdicts against hedge funds are compared alongside the number of allegations of wrongdoing. We’ll see if they can show some restraint, now that they seem to have an actual, real case to bring before the public.
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I’m not even sure that I fully understand what constitutes insider trading.
For example, ASH was a supplier of a business I used to own, and I extensively badgered any and all contacts I had there with questions about “how is business” and so forth? Was that insider trading? All any of my contacts ever said was “run, run, don’t buy this stock, business is terrible, we’re all going to diiiiiiiieeeeeee!!!!!!!”
I once got IR at BZ to give me the terms of their debt covenants before they were published. I did this by calling them like 4 times and finally just saying “look, damn near every other company I follow publishes this shit in their 10Qs, just put it in there and tell me, its not like its a trade secret”. Was that insider trading? Anybody could have done it. They had already said “we do not anticipate a situation where we violate them” and they HADN’T violated them, and business was clearly moving in the right direction, so it was a moot point anyway, but…
I have a good friend who works for a gigantic company that is working with one particular solar company on a project that would be more than material to the fortunes of said solar company. Is that insider trading if I buy said solar company? How could it possibly be? There’s no way to know that just because a project exists its going to be a commercial success or even reach commercialization.
Some of the stories about Raj are clear as day, I agree, Cain. Martha Stewart was probably as guilty as sin. A guy buying a shitload of stock in, say, DSCO at the open after seeing on his bosses desk a memo from the FDA stating approval for surfaxin would clealry be guilty.
But what about a guy who works for a company who is working with a tiny, public, company on a project that he thinks has a very high chance of success? Is that insider trading? Is it still illegal if he loses money on the trade? I realize the law wouldn’t differentiate (would it?), but is anybody going to prosecute some guy for losing 100k?
If you were at a bar and John Paulson was as drunk as a skunk and told you he was about to buy $50 million worth of stocks in JOEZ… is that insider trading? That’d sure as hades move JOEZ up, but is Paulson an insider?
I think the lines of what constitutes insider trading could easily be found fairly blurry, although I would confess I have never spent 10 minutes reading about insider trading law.
I think its an interesting topic, and I liked your post. I think that more hedge fund witch hunting is probably in the cards… but you know what? That isn’t completely a bad thing.
Most of these “level playing field” ideas got started under Kennedy (the senior, not the sons) if I recall. While he was head of the SEC. And, it’s also nearly impossible to separate the guilty from the superiorly clever.
It’s interesting that insider trading laws don’t apply to bond markets. Not enough potential profits (usually) to worry about. In fact, I think stock markets are the only realm that insider trading laws are applicable.
Personally, between you and I, I don’t care enough to judge any of these people, including Rajaratnam. Life’s too short to constantly worry about who knows more than you. Especially since the answer is usually “everyone” in one way or another.
You can manipulate markets for a little while. But when doing so destroys your credibility, you’ll never manipulate them for long.
Nice work, Cain.
I once spoke to the CFO of Hans
And he told me the earnings for the qt 3 minutes before reporting
Is that insider info?!
Lol