Justice done

There are some lessons from the trial and conviction of Raj Rajaratnam, billionaire financier and founder of the Galleon group, one of the world’s biggest hedge fund firms, by a New York federal court. One is that big cases of financial fraud continue to dog the markets in spite of all the action that is being taken. Rajaratnam is the 35th person to be convicted, of the 45 who were charged with insider trading, in the US in the last 18 months. He was high-profile and his arrest had created surprise and sensation in the financial world. With competition increasing, the temptation to cut corners or make profits illegally is also increasing. Insider information is a short cut, and possibly the malpractice is more widespread than is suspected.

Rajaratnam argued in the court that the information that he received from his contacts in many companies and the methods he employed were legitimate. The jury did not accept the argument but it underlines the increasing complexities of the financial world, where the dividing line between the legal and the illegal is often blurred. Unprecedented and unconventional methods are used to ferret out useful information. Similarly law enforcement agencies also employ unconventional techniques to track and trap violators of the law.

The FBI used methods, including wire-tapping, which are often used against the mafia, to catch Rajaratnam. It is good for the heath of the financial markets and for the confidence of the investors that actions of even the big financial fish are being monitored and scrutinised. A major weakness of the investigative system and its follow-up procedures is that the fraudsters and wrong-doers are caught after they have done the damage. If they are caught at the stage of conspiracy and planning  and if the regulatory system is made stronger so that the crimes can be prevented, much damage and loss would not actually take place at all.

There is a lesson for India from the Rajaratnam affair. The entire process of investigation, trial and conviction of Rajaratnam took only 18 months. Cases of fraud other financial misdemeanours take years and sometimes even decades to reach the level of closure in India. The Harshad Mehta scam, the securities scandal and the Satyam computer scam are examples. Markets will be healthier and people’s confidence will be higher if wrongdoing is found out and punished expeditiously.

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