The complaint against Raj Rajaratnam notes that his AMD trades were not profitable. In fact, it appears Galleon lost approximately $30 million.
That, of course, is $10 million more that the $20 million in profits Rajaratnam and the other defendants are alleged to have made in illegal profits.
As the New York Times points out in an analysis piece on the trades today, “insider trading is still insider trading,” even if one loses money. But losses can be helpful evidence for defendants.
NYT: But the fact that some of the investments soured, and that, in all, Mr. Rajaratnam lost money, could be powerful evidence for defendants. Inside information is, by definition, information that is material to investors, and thus could cause a company’s stock to move in a direction that will be obvious in advance.
For example, if a company’s stock is trading at $75 and someone learns that the company will be taken over for $100 a share, that information would be material. But routine corporate news — a retailer announcing new store openings, for instance — is generally not considered material.
“The violation is trading on material nonpublic information,” said Robert A. Mintz, a former federal prosecutor who now heads the white-collar defence practice at the law firm McCarter & English. “There’s no requirement that that trade results in a gain to the defendant. But if it turns out to have been a money-loser, it obviously gives the defence some fodder to argue that the information was not material.”
Herrick, Feinstein partner and white-collar crime attorney Steven Feldman told the NYT that prosecutors may choose to remove the AMD transactions once the defendants are formally indicted. (So far, there are just the complaints, not an indictment) Sentencing recommendations are based on how much money was made, so it would make sense to choose not prosecute a loss.
Interestingly, Feldman also suggested that the lack of indictment at the time of the announcement and the fact that there were two complaints (Rajaratnam and Danielle Chiese were named in separate complaints) could mean the investigation was “rushed” at the end.
AMD trades aside, it’s important to note that the complaint of course lists the counts separately — a conviction and a sentence can be achieved on any of them.
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