Discuss about the Comparative Business Ethics & Social Responsibility for Enrichment.
The secret investigation and subsequent conviction of Rajaratnam and other people in the case study presented will prevent other financial managers and other investors from sharing nonpublic information or using such information for personal enrichment. The reasons for this stand are explained in the following section of this report.
The sentence that Mr. Rajaratnam of eleven years and the order to pay damages to all those affected by the malpractice amounting to over US Dollars 158 million. Research has shown that heavy penalties deter other potential criminals from engaging in the criminal acts (Larry, 2005). Many people who engage in inside trading love making faster money and in any case they try to avoid instances that can make them lose their money. Rajaratnam hired the best attorneys in the States to avoid losing and if only he had an example like the one he set, he would have avoided the crime. He was even willing to collude with investigators and corrupt the Intel corrected on him because he knew the penalty awaiting him if he is found guilty. Fear will prevent the other people willing to participate in the crime and thus nonpublic information will not be disclosed for personal gains. Heavy penalty set is a motivation enough of making financial managers and investors shy off from these activities (Brody & Ackerman, 2014).
When the Securities Exchange Commission (SEC) decided to bring in people who were colluding with Rajaratnam in insider trading, a warning was given to all the perpetrators that betrayal is possible. Mr. Khan accepted to collaborate with the government in ensuring the conviction of the said individual. He was even willing to testify against Rajaratnam with the hopes of facing a lower charge in his own conviction. It was the best move that made it possible to more information to be corrected regarding the activities and the communication of the offended. Text messenger and videotapes were corrected with the permission of Mr. Khan. The whole scenario will act as a warning to potential fraudsters that the authorities can use any means possible to acquire the evidence necessary to convict someone in a court of law (Gross, 2007). Secret investigation that includes key players in the crime will best stop the malpractice
During the investigation of Rajaratnam, the SEC used information of other suspects such as wire transfers in offshore banks or incorporating their investments with shell companies and the subsequent failure to report such gains while filing the tax returns. A good example is that of Mr. Anil Kumar who gained from insider trading and hid the money in offshore accounts. In addition to secretly investigating the accused phone conversations, following keenly on the investment patterns and how money acquired is utilized helps to raise red flags of insider trading. The act is important in proving beyond doubt that the suspect actually has got something to hide. Such a move and a way of the investigation will make potential criminals from committing the crime. They will be worried that the proceeds from their activities will be traced back and as a result, their activities will be exposed (Levine, 2014). Connecting the accounts and financial assets of a suspected person with the activities investigated will reveal facts that will eventually form part of the evidence. Such acts will always deter fraudsters from engaging in the activities.
The prosecution of Galleon involved presenting evidence from the network of friends of the chief financial investor analyst of the company. The result was that the said person did not maintain the friendship for reasons of professional engagement but for facilitation of insider trading. Investigating the reasons for these networks will in most cases reveal undisputable evidence that fraud was taking place. Mr. Khan, for example, was found having sent a text message to Rajaratnam that he should wait for directions. As a result of investigating the friendship, the SEC lawyers became suspicious of the investment decisions of the company and its chief executive officer. It is thus clear that following these networks will be an important lead to catching the fraudsters. The result of this act is that those who could plan to maintain a friendship with other professionals with the aim of getting the nonpublic information for personal enrichment will be cautious of such a move and what is more they will avoid the act. As it is echoed by Richard in a journal article that friendship and networks form an important lead in investigating insider trading (Richard, 2001).
Mr. Rajat Gupta, a business alley of Rajaratnam and a respected businessman in the states who was the first Indian Born Chief Executive officer of a multinational corporation and considered a man of integrity was found guilty of insider trading and was sentenced two years in prison and a fine of 24.9 million US Dollars (Savage, 2007). The main lead to his conviction being a phone call he made to Rajaratnam on September 25th, 2005 concerning the Berkshire Hathaway’s purchase of Golden Sachs stock. The call made it possible for Galleon to make Millions of swift profits. Investigating Gupta and his conviction sent a warning to all potential fraudsters that no matter their profile or status in the society, SEC will investigate them and if found guilty they will have to face the full force of law. The case was a symbolic victory to federal investigators and SEC at the same time sending a message to those in the financial sector that no wrongdoers no matter how powerful they are. As stated by Thomas Newkirk in the International Symposium on financial crime, punishing wrongdoer has no limits or status (Newkirk, 2000).
The use of wire tapes in the Gallons case set a precedent that such ways of acquiring information could be used even in financial crimes in addition to the historical use of terrorism, drugs and organized crimes. That was a milestone in fighting the issue of insider trading bearing in mind the perpetrators use electronic ways of communication such as e-mails, text messengers, phone calls and other digital information. The result is that the pieces of evidence corrected using this method is admissible in a court of law and thus fraudsters will have no hiding place as the case used to be (Brooks, 2012). The SEC and other financial crime investigators can use these methods and this will pose a challenge to those who share nonpublic information with the aim of enriching themselves as they will have no means of sharing it. This will eventually lower the cases reported on inside trading and the securities markets will have fair deals. In many cases, the offenders had hidden in the shield of constitutional rights of personal privacy but with this precedent, the investigators can use the evidence even without a court order validating it (Ventoruzzo, 2012). Acquisition of such information will scare off those preparing to engage in the crime and eventually insider trading will vanish.
Conclusion
In conclusion, the evil of insider trading has left many security markets all over the world vulnerable to unfair competition and as a result, many genuine investors lose their funds. It lead to the collapse of Galleon and other companies that were trading with it. Rajaratnam is just but an example of many other businessmen who are engaging in this unethical practice. It is a breach of the confidentiality that professionals are expected to uphold especially to the shareholders. The practice hurts the economy with millions of money being lost in the securities market among many other evils. It is for this reason that the practice should be discouraged and perpetrators punished as per the regulations such as the Securities Exchange Act of 1934 and other judicial precedents available in the US legal system. People should also be taught financial ethics to show them the evils associated with this form of fraud and why they should avoid it.
References
Blodget, H. (2011). Outrageous Insider Trading. Business Insider, 44-67.
Brody, M. &. (2014). Prosecutors Subpoena Congress in Insider Trading. The Market Watch, 23-45.
Brooks, P. (2012). Gulf Between US and UK Insider Trading. Financial Times, 17-19.
Christopher, C. (2009). Insider Trading Problem. The Star, 12-29.
Findlaw. (2012). Insider Trading Cases. The Findlaw, 34-45.
Gross, D. (2007, May 29th). Insider Trading Congregational Style. The Washington Post Company, pp. 13-22.
Larry, H. (2005). Insider Trading. Chicago: Oxford University Press.
Levine, M. (2014). SEC Insider Trading Investigation. Deal breaker, 67-98.
Newkirk, T. (2000). Insider Trading. 16th International Symposium on EconomicCrimes (pp. 13-18). Cambridge: Jesus College.
Richard, T. (2001). When is it Legal to Trade on Insider Training Information. Sloan Management Journal, 89-92.
Savage, D. (2007). Supreme Court Affirms Broad reach of Insider Trading Laws. Los Angles Times, 95-108.
Ventoruzzo, M. (2012, June 19TH). Insider Trading in the US and Europe. Havard Law School, pp. 23-45.
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