The conviction of Raj Rajaratnam, founder of the Galleon Group hedge fund, on all 14 counts of securities fraud and conspiracy, defines the recent era on Wall Street in the same way that the convictions of Ivan Boesky and Michael Milken defined an earlier era.
During a weeks-long trial in New York, prosecutors painted a detailed picture of how aggressive tactics were used to pry loose market moving inside information.
Evidence included dozens of wiretaps and dramatic testimony describing collusion between corporate insiders, including a prominent board member, and traders.
It also described a web of ‘expert networks,’ and cash payments worthy of a movie plot. The jury deliberated 11 days before returning a ‘guilty’ verdict on all counts.
IR magazine caught up with Jeff Morgan, NIRI president and CEO, just after the news had broken and he took time to offer what he thinks the verdict means for IROs.
‘I don’t think anybody in IR would be surprised at the verdict,’ he says. ‘Hopefully, those that try to push the envelope’ will be much more hesitant in the future, he adds.
While some critics of the current disclosure landscape say the rise of expert networks and the trafficking of insider tips is a response to Reg FD, Morgan is having none of it.
‘I think the world has been built around people trying to get information nobody else has,’ Morgan observes. ‘Reg FD tried to draw some boundaries. This case today shows those boundaries are going to be enforced.’
The Galleon case, potentially snaring a board member, corporate officers and mid-level operations employees, also illustrates the challenges IROs face in managing disclosure risks.
Morgan says the high-profile trial and verdict provide an opportunity for IROs to reinforce their disclosure policies internally to insiders who might be tempted to provide sensitive information either via expert networks or directly to analysts.
‘It’s a learning opportunity, and an opportunity to reinforce what I think most companies are doing anyway,’ he notes. ‘Here is what can happen. Here are the lessons. Here is why we have processes in place to speak to outsiders. It’s a wake-up call that this is serious business.’
‘Ethics – doing what’s right and wrong, legal and illegal – have no boundaries. Anytime you have bad actors in the marketplace, you have to root out those bad actors. To me, justice was served. If there are cascading consequences toward other insiders, so be it,’ he concludes.
[Article by Brad Allen, IR magazine]