Insider Trading At The Galleon Group: A Case Study Essay.

Read and complete a case study report based on the case  Insider Trading at the Galleon Group.

Q1 - Are information gathering techniques like Rajaratnam’s common on Wall Street? If so, what could regulators, investors and executives do to reduce the practice? 

Q2- What are the implications of sharing confidential material information?  Is it something that would affect your decision and how to trade a stock if you knew about it?

Q3- Do you think the secret investigation and conviction of Rajaratnam and other people in the Galleon network will deter other fund managers and investors from sharing non-public information? 

Discussion

The Wall Street indeed showcases many different ways in which information are gathered. Rajaratnam actually was a financial tutor or guru who was the legal owner of the hedge based fund firm, Galleon Group. The individual with a strong analytical sense made this firm a successful one under his ownership. However he was also engaged in many illegitimate activities in relation to trading. Rajaratnam had a huge network and sources in place. His network helped him gather crucial sensitive financial information based on which he tool many business decisions. He gathered information about some of the big names in business like Intel, Google, IBM, Goldman Sachs and McKinsey (Colesanti, 2011). Such unethical practices helped gain huge financial gains as well. This paper discusses all these in further details.

Rajaratnam case study a common example in Wall Street

It is as per me very common information gathering process in the Wall Street. Rajaratnam was an analyst associated with the investment banking organist ion named Needham % Co. It was year 1985.  The financial analyst was highly intelligent in creating a very hostile natured network and knew note taking methodology of research. With this highly significant know how the individual had outstanding abilities to make predictions and forecast financial outcomes of organizations around him. A series of forecasts helped Rajaratnam invest in the most profitable ventures. This also helped him form his own organization known as Galleon. Rajaratnam was networking with various organizations such as the IBM, Intel Corp, Goldman Sachs, Applied Materials Inc and McKinsey & Co. Illegally with the help of the various sources and contacts Rajaratnam used to churn out insider financial information. This was unethical and illegitimate trading practices being performed consistently. This also comprised of wire fraud and securities which was over $63.8 millions (Ferrell and Fraedrich, 2014). All such gains were made just by using insider tips and information. Soon the individual was under the courts investigation. Over 26 people who were associated were found guilty by the court.

This was an excerpt from one single case in the history of unethical trade practices. There occur many such stories in real life. Such techniques to collect insider information are hence a common scenario in the Wall Street (TheEconomist, 2017). Using various techniques such as phone calls, text tops and meetings such information can be received in a simple manner. This is a usual practice in the Wall Street because this is perhaps the most simple and cost effective way to gain more financial profits.  Accusations was made to Galleon that the firm was engaged in insider trading. Soon the government intervened to what Rajaratnam was being practicing (Kaplan, 2012).

The main reason why such data collection processes are common in the Wall Street is because investors, players and brokers get huge returns by such unethical acts. Just by knowing some insider valuable piece of information before even it is out in the world for the public to know huge bucks are earned. Every stock market located in the entire world is struck by such trading activities (Verrilli, 2016). Sometimes some of the senior most executives in various business organizations are the one who are associated with such practices.

Are information gathering techniques like Rajaratnam's common on Wall Street?

Ways to reduce the practice by regulators, investors & executives

The various regulators, investors as well as executives however can take steps to make such practices reduced.  This is firstly by keeping a close and strict tracking about their own information which is getting distributed. These executives must also have a close watch on the various financial transactions they make on a daily basis. If there is even a very small amount of suspicion that, in any form then one must instantly take actions. Regular monitoring on business associates and processes will help understand whether someone is using he information in an illegal manner. They can make different measures to stop such illegitimate methods of trading (Bondi and Lofchie, 2012). It cannot be denied that corrupt people will still find new ways to continue unethical business practices. In a nutshell there is no single rule or step following which illegal information collection methodologies can be lowered.

Regulators have to learn to watch every business action closely and carefully. Especially before any major event which an enterprise will be undergoing the watch must be stricter in nature. Such major business events can be mergers, acquisitions, upcoming product or service launches, investments, new contacts or associations, changes in company regulations or policies.  All these events must be observed way before it takes place (Seyedin, 2016). For this analysts must observe and analyze analytical tools and information collected. Spotting a suspicious activity is a challenging task. As soon as one detects the person who is actively passing sensitive business information they must be handed over the law.

There are many people who invest regularly into corporations who are performing well and are predicted to bring better outcomes in the near future. However it is a daunting task. One must make the right decision to avoid financial losses. Investors must avoid firms having a negative track record. For making such a decision the investors must look at the entire event in a fundamental manner. They can look into the past performances of the firm and check about the integrity of the organization (Frederick, 2016). Any investment which is short term can turn out to be a risky affair owing to the amount of volatility associated with it. These investments are sensitive and hence care must be taken before making them. However, under no circumstances investors must encourage doing unethical trade practices to gather information.

In case of the various executives associated with different organizations the sense of loyalty must always be encouraged and adopted. Loyalty is the basic parameter of a good employee. There are many business organizations which can make employees sign up NDAs or Non Disclosure Agreements when recruited. These are legal agreements where when recruitment is made employees agree that they will never disclose any information about the company to the outsiders (Afonso, 2017). For example executives when they speak to any outsider must take special carefulness and awareness about what they are talking. If regulators find out that any employee is participating in selling out insider sensitive information then there can be punishments associated with it. Such potential outcomes and the embarrassments and future loss of employment opportunities must deter any employee from undergoing any unethical practices. 

Implications of sharing confidential insider information

Implications of sharing confidential insider information

Sharing the confidential material information has two major implications and these are unethical practices and risky moves. Moreover such behaviors will increase the chances of getting into major legal troubles. To share confidential business information is in itself an illegitimate task. Information if it reaches the public before it is supposed to can cause huge financial losses to brands and business enterprises. If the people who are engaged in such activities are caught then they are to be prosecuted and brought to the Court and found guilty on investigation. Any employee giving out insider information of the organization they are associated with is an illegal act (Oatts, 2014).  Sometimes employees while speaking with outsiders speak out insider information unknowingly as well. People who are not having good intentions pick up such information and use them to their self interests and benefits. This further implies that there exist people who can do any activity just for the sake of money.

Legal implications

Termination- Termination is the first implication of breaches made by people associated with a business organization. If an employee is under a contract with the organization and makes a wrong use of business information then it leads to the employment contract breach as well as along with the breach of information and confidentiality.  Hence it is the legal rights of the organization to fire the respective employee who participated in the wrongful action.

Lawsuits- The employer of an organization if finds out that there is breach of information and confidentiality can even sue the employee. If these trials are successful then employers can fetch financial fine and charges from employee. Hence, in such cases employees have to pay a fine to the employer.  Such lawsuits occur in circumstances where financial damages are made by the employee. For an instance if any sensitive business data is shared to competitors then the business can undergo a financial loss (WallStreet, 2017). So if found out guilty such employees are forced to pay the damages. 

Criminal Charges- If the case of confidentiality breach more serious then the legal implications are much higher. There can be criminal charges which the organization can bring against the respective person. Such a confidentiality breach signifies a theft has been made in relation to the intellectual and proprietary information of the organization. Hence such a crime is a serious one and can lead to imprisonment or fine. The government in such cases will also support the organization.

Reputation- To think about such acts in the long term this highly affects the reputation of the employees. Any person who belongs to an organization or is an investor who is gathering insider information and affecting their decision making in the long run looses their goodwill in the industry (Poster, 2013). This is a huge damage as without goodwill not investor will be welcomes by companies.  Not even start ups that are in need of funds will rely on such investors who use insider information and are found guilty.

Do you think the secret investigation and conviction of Rajaratnam and other people in the Galleon network will deter other fund managers and investors from sharing non-public information?

Effect of the information on stock trading method

Knowing the case study of Rajaratnam and all the above implications my own decision making in relation to trading is changed.  Trading stock in the unethical manner is not just a wrong act but as per the jurisdiction and legislation it is a crime and it is punishable under law. So, although I will have many insider information about any stock I will definitely not use it in relation to the stock.  I would be alert and aware and make conscious decisions not to react on it. My decision will never be using illegal methods to bring any kind of a financial gain. However the very fact that I am having insider information can cause m a lot of trouble if the time comes for a legal interrogation (Mohanty, 2011). Hence, it can be concluded that when I am ware from the insider arena that a particular stock in future times is going to diminish in value it becomes highly challenging for me to decide to invest into it. So, when one has insider confidential information which they are not supposed to have it becomes difficult to how one undergoes trading.

It is not right for confidential information to get released without the engaged parties permitting or having the knowledge about it.

Confidentiality is an influencing fact in itself. Business partners have a common understanding in them which is based on their own beliefs and trusts which make them share confidential information (Fowler, 2016). Such business information is of great worth.  There is much important information in business which if gets exposed to outsiders can cause serious harm to the people who are involved with it. Moreover this exposed confidential information can cause financial issues and concerns as well. It can lead to loss of finances, loss of employment and wastage of time and efforts. Business employees violating rules can be subjected to penalties. 

Opinion on the case and whether it will stop fraudulent activities in future?

The entire financial industry has today become observant and well regulated so that it can deter the occurrence of corruptions and frauds. However the increased number of lawsuits n relation to insider information sharing frauds showcases a different picture. The co founder of the Galleon group Raj- Rajaratnam was accused for conspiracy and fraud and was found guilty by law. The firm was involved in fetching insider trading.  Many were charged as guilty and many made pleas. The primary figure involved in the case was Rajaratnam. He has done a varied series of insider trading all his life. It is a crime which first began small soon became a habit and means of earning better financials.

In my opinion the entire Rajaratnam case investigating as well as conviction will not deter managers, executives and investors who undergo fraudulent activities like sharing confidential non-public information. This is because people are intelligent and they will continue to find new ways of doing such activities to satisfy their self interests and for attaining financial gains using fewer efforts. For such kinds of people, there are nothing called ethics in business. Their main aim always is to earn money no matter what the path is (Anonymous, 2016).

Business professionals are always studying the fact how small unethical steps made by people can enter into a snowball effect and over time create large scale implications and loss. With time unethical behavior can unfold to be huge disasters.  Scholars and business analysts have experimented and researched on this subject since long. Generally, small actions which are unethical in nature are ignored and neglected by people. Even people justify such small unethical actions in trading. They often are of the opinion that with such small steps like using an employee of an organization to get little insider information will not harm anyone. Rather in place of that it will cause one a little profits. Hence many people engage in such small bits of acts (Packer, 2011).  They feel positive about it as the nature of the act is often small. But they consistently practice it everytime thinking that it is a small act and will not cause damage to anyone.

Since they are using a rationalization process it signifies there is a disengagement of the moral self. Many times such unethical trade practices become a behavioral pattern. And in no time they become efficient practitioners in these. Problems such as less money, bad time, need are not enough to justify the reasons why people undergo such acts. Simply putting it one can consider that it starts really small and then with continued practice undergoes the snowball effect and becomes a large scenario.

Things learnt from the case study

Carefulness while conversing-No one knows what people do with the information they gather about others. The case of Rajaratnam is a real life scenario. Here in this case the defense has argued that the accused was just doing his daily job requirements. The defense legal also claimed that the information in question are always in the knowledge of the public and is no longer a secret.  Many people who are associated in the case also pleaded for guilty. They wanted to support the authorities. They have disclosed to the country that they have provided secret insider information to Rajaratnam (Scannell, 2011). There also exists a question whether these people knew that the information they are providing is of confidential nature. Hence, the learning from this case is that people in service or business must be really careful when they are conversing with outsiders.

Understanding the implications of greed

People in trading must be far from greed. People must aim in making a living by making hard work. If there is a larger need for money then people must work harder to achieve it. Greed is a disastrous feeling and one must understand it. As per the case whether or not Rajaratnam is found guilty or not found his goodwill is lost forever (Newkirka, 2008).  The greed of one person in gathering insider non public information has caused harm to many lives surrounding him. A huge amount of profits was made using this information. As a result organizations have gone through huge losses as well.

Understanding new ways for legal actions

The legislations are becoming stronger and stricter day by day. The courts are finding new ways to find out people no matter how resourcefully they are. If any person is caught in sharing non public information using unethical trading practices the law will spend no time in taking strict actions against the person. It is a matter of debate whether such steps will be able to stop frauds being committed forever. However people who are having the habit of earning money by selling information must become aware and alert that their ways will be detected soon. No matter how new their ways is the law has longer reach than one can even expect.

At a rapid rate in Wall Street insider trade related fraud is being practiced. The case of Rajaratnam is a living proof and there is also huge number of real life examples which further strengthens the fat that such acts will never cease.  Organizations will definitely try by reading these studies remove any person whom is suspicious to them (Bandow, 2011). They will also monitor their business surroundings in a more serious manner. But this alone cannot deter any future such acts being executed. 

Conclusions

The main gist of the above case study is that it is not legal to find insider trading information and actions. People do fall in the trap of greed and do such actions. They lose the sense of making the right decisions. Hence self interest becomes the biggest factor which needs to be satisfied rather than caring that business methods cannot be unethical. Such actions will continue to exist. However government and law must make compliances robust, surveillances stronger and have better control measures (Cohan, 2011). Trading insider information today leads to legal consequences. The analysis of the above case helps find out such negative results. Trying to make such acts as legitimate acts will just improve the inefficiencies of the system.  The Rajaratnam case does conclude that his acts were unlawful and they do not stand upright when scrutinized.

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