What strikes me about the arrest of Raj Rajaratnam on charges of insider trading is the light it sheds on how many organisations surrounding big companies are given access to inside information about their financial performance.
In Mr Rajaratnam’s case, he is alleged to have traded about a number of companies, including Google, IBM and Sun Microsystems, on the basis of inside information supplied to him by a range of management consultants, investors, credit ratings analysts and others.
The FT story records that:
Prosecutors claimed Mr Rajaratnam, founder of the Galleon hedge fund, and others used insider information from sources inside hedge funds, public companies, Moody’s Investors Service and an investor relations firm to trade ahead of earnings announcements, acquisitions and joint venture deals . . .
Among those charged with providing inside information were Robert Moffat, a senior vice-president at IBM; Rajiv Goel, a director in strategic investments at the investment arm of Intel; and Anil Kumar, a director at McKinsey.
All of these organisations were given private details about the companies’ performance and are alleged to have shared it with Mr Rajaratnam and others at Galleon.
One US fund manager I know said he believed this sort of insider trading was common in financial markets, which is supported by the number of incidents of share prices moving ahead of announcements.
The Rajaratnam complaint gives a vivid picture of how this kind of thing is alleged to occur.
