H.L. INSTITUTE OF COMMERCE T.Y. B. COM Business Ethics, Corporate Governance and Social Responsibility Faculty: Ms.

Toral Shah INSIDER TRADING CASE STUDY THE PLAYERS Raj Rajaratnam was the Sri-Lankan manager of the hedge fund Galleon Group, which managed $6.5 billion at its height. Preet Bharara is the United States Attorney for the Southern District of New York. In October 2009, the Justice Department charged Raj Rajaratnam, a New York hedge fund manager, with fourteen counts of securities fraud and conspiracy. Rajaratnam, who was found guilty on all fourteen counts on May 11, 2011, had allegedly cultivated a network of executives at, among others, Intel, McKinsey, IBM, and Goldman Sachs. These insiders provided him with material nonpublic information. Preet Bharara, the governments attorney, argued in the case that Raj Rajaratnam had made approximately $60 million in illicit profits from inside information. The case against Rajaratnam, formerly the head of the Galleon Group, centered on an extensive network of tips he received over the course of at least six years, giving his hedge fund unauthorized insight into pending mergers and acquisitions, upcoming quarterly earnings at other companies and other transactions. Raj Rajaratnam was the 35th person to be convicted of insider trading of 47 people charged since 2010. This effort to prosecute insider trading has been marked by more aggressive tactics such as wiretapping to prosecute insider-trading cases, which might otherwise be difficult to prove. The case also marked the first time that wiretaps were used as part of a major insider trading investigation. More than 40 recordings collected over the years figured heavily into the case against Rajaratnam, including a tape showing that he had received information about an expected quarterly loss at Goldman Sachs from Goldman board member Rajat Gupta. Some of the most significant testimony in the trial came from Anil Kumar, a former McKinsey & Co. consultant who pleaded guilty to conspiracy and securities fraud and later agreed to cooperate with the government in the case. According to the Wall Street Journal: Mr. Kumar's four days of testimony provided the cornerstone of the government's case, including damaging testimony from the consultant that he was paid $500,000 a year by Mr. Rajaratnam through an offshore account to an account in his housekeeper's name in exchange for insider tips. One such tip, involving the acquisition of ATI Technologies Inc. by Advanced Micro Devices Inc. in 2006, generated Galleon profits of nearly $23 million. The government has now demonstrated that in situations that it has wiretaps and cooperating witnesses, they can convict. This is a vivid message that you can go to prison for insider trading even if you are a sophisticated business professional."The U.S. Attorneys Office called the case the largest hedge fund insider trading case in history. It is a case about whether or not the evidence was lawfully obtained. CONVERSATION TAPPED: Have you heard anything along that line? Rajaratnam asked Gupta. Yeah, Gupta responded. This was a big discussion at the board meeting.

Questions:
1. Do you believe that wire tapping can be used as an evidence for convicting for insider trading? 2. What is the drawback of using wire tapping?