FE Editorial : Tales from Raj

Tue, Oct 20 02:08 PM

The latest joust rousing Wall Street features a South Asia-born vs South Asia-born. Arrested in a case of insider trading, billionaire manager of the Galleon hedge fund Raj Rajaratnam holds both US and Sri Lankan citizenships. Leading the charge against him is Punjab-born Preet Bharara, whom President Obama recently appointed the new Attorney for Manhattan in New York, perhaps the most significant federal prosecutor's post outside Washington. Bharara oversees a team of more than 200 lawyers who handle some of the most prominent cases in the US, including Bernard L Madoff's multibillion-dollar Ponzi scheme. The latest one extends all the way to Silicon Valley, Moody's, McKinsey and India. For example, arrested McKinsey director Anil Kumar is on the executive board of the Indian School of Business. Hilton Hotels, Google, IBM, Sun Microsystems and Akamai Technologies are among the other companies concerning whose mergers, acquisitions or earnings the accused obtained non-public information to generate profits exceeding $20 million. Bharara says this is not a garden variety case. But we would disagree. In its listing of Rajaratnam as one of 400 richest Americans this year, Forbes said his best ideas came from frequent visits with companies and conversations with executives who invested in his fund. Everyone who has written about Galleon acknowledges that it made its name by getting exclusive information about corporate earnings, hot IPOs and so on. Making around 1,000 trades a day today, when it was charged with creating "sham transactions" in 2005, it got away with just paying a fine, without admitting any charges. In a 2001 book, Rajaratnam said, "I want to win every time. Taking calculated risks gets my adrenaline pumping."

In short, perhaps the US regulators should have caught up with his shenanigans sooner than they did. Now that they have, what's the lesson for India? The Rajaratnam case has unfolded almost like a mob bust, thanks to the wiretapping at its heart. The taps caught, for instance, New Castle hedge fund portfolio manager Danielle Chiesi saying: "I'm dead if this leaks. I really am—and my career is over. I'll be like Martha (expletive) Stewart." Oh wait, she bounced back. So, let's not assume that this bunch will suffer time in jail. It was only thanks to telephone tapping that they were caught. But as per the antiquated Indian Telegraphic Act, 1885, financial regulators here at home would have to go through the cumbersome process of obtaining written orders of the home secretary. It's time to give our financial regulators a separate and speedier channel to tap telephones. Some big boys in the lam may dissuade many more—that's a powerful trick in combating white-collar crime and it's a trick that India doesn't see often.

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