Insider trading conviction

Nakakainggit! (How enviable!)

This was my immediate reaction after reading last week’s news that billionaire Raj Rajaratnan, a Sri Lanka-born American, who headed one of the biggest hedge funds companies in the United States, was sentenced to 11 years in prison for insider trading, the longest sentence ever given for such crime.

Described by prosecutors as “the modern face of illegal insider trading,” the 54-year old investment manager whose favor was sought by financial institutions interested in the billions of dollars his company administered was convicted last May.

Aside from the prison term, he was ordered to pay a fine of $10 million and to forfeit $53.8 million of the more than $72 million he allegedly earned from his illicit transactions.

The judge said “his crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated. When the integrity of the marketplace is called into question, the public suffers.”

What made me drool over this case is the professionalism of the investigators who gathered the evidence against Rajaratnan and his partners in crime, and the skillful presentation by the prosecutors of the evidence that sealed the maverick trader’s fate who, at the time of his arrest, had an estimated net worth of $1.8 billion.

Paper trail

Arrested in October 2009 after more than a year of quiet investigation, it took only two years for him to be tried and convicted for 14 counts of conspiracy and securities fraud.

This case stands out for the first-ever use by the authorities of wiretaps to record his conversations with his co-conspirators on the sale and purchase of stocks of public companies using insider information, or material information that is not known or available to the public.

Unaware that their telephones were tapped, the crime partners gloated over their illegal trading gains and talked about their plans on enjoying the fruits of their “success.”

The information that came directly from the horses’ mouths was matched with the stock transactions they made before and after the recorded conversations.

Because all the details of the trades involved were captured by the trading platforms used by the parties, the paper trail inevitably led the authorities to the doorsteps of Rajaratnan and his accomplices.

When confronted with the evidence against them, his cohorts readily admitted their guilt and agreed to testify against their ringleader in exchange for lighter sentences. It was every man to himself, with friendship and past favors from Rajaratnan conveniently forgotten.

Sentence

With his treasure chest, Rajaratnan was able to engage the services of the best Wall Street defense lawyers that money can buy.

As expected, his lawyers tried to have the charges dismissed, witnesses with potentially damaging testimonies disallowed from taking the stand, and wiretapped conversations interpreted in a manner different from their plain meaning.

No dice. The evidence presented by the prosecution was simply overwhelming. There was no way Rajaratnan could extricate himself from the mess he created.

Taking into consideration his poor health and past philanthropic activities that include, among others, assistance to the victims of the 9/11 terrorist attack and earthquake in Pakistan, the court reduced the two-decade imprisonment the prosecutors demanded to 11 years.

Barring any last-minute hitches, the richest Sri Lankan in the world will start prison life on November 28. He will exchange his posh residences for a cell with the barest of amenities.

His lawyers though have asked the court to commit him in the same prison where Bernard Madoff is currently serving a 150-year sentence for masterminding the biggest-ever investment scam that bilked thousands of investors of billions of dollars.

Come to think of it, if that request is granted and the two are allowed to share the same cell, they can compare notes about their past exploits and, perhaps, co-author a book on how they were able to run rings around the authorities for years before getting caught. That will be a bestseller.

Lessons

It is a tribute to the American legal and judicial system that a case as complex as insider trading—which requires the gathering and evaluation of voluminous records of stock transactions over extended periods and establishing the pattern that proves the intent to take undue advantage of material nonpublic information—can be tried and resolved in two years.

The speedy resolution of the case may be attributed, among others, to the expert handling of the proceedings by the judge who knew the intricacies of securities law and was not intimidated by the presence of high-powered defense lawyers.

Lawyers behave when they know that His Honor is no pushover and will not hesitate to assert his disciplinary authority if they try to test his patience or engage in dilatory tactics.

The case though is far from over. His lawyers plan to appeal the conviction to a higher court. While the appeal wends its way through the judicial mill, the once high-flying financial adviser will have to sit it out in a cold and dank prison cell.

According to the prosecution lawyer, this case proves that “privileged professionals do not get a free pass to pursue profit through corrupt means.”

If it takes 13 years for a simple illegal dismissal case, like that of the flight attendants of Philippine Airlines, to be decided with finality by the Supreme Court (only to be later “de-finalized”), an insider trading case will probably take … never mind.

(For feedback, write to rpalabrica@inquirer. com. ph.)