I chose this topic, as it represents the world we are living in, not only because these men were able do actively pursue insider trading, but that we are living in a world full of witch hunts. The government is trying every possibility to get their hands on money, to blame others for their failures. First it was the large bonuses, then the Swiss banks and the apparent tax evasions, now its hedge funds, what next?
Let’s be honest who doesn’t want Bud Fox, Gordon Gekko's assistant to get away with insider trading in the epic movie “Wall street”? Deep within us, we all want to succeed one way or another, we want to be on top and stay there. There will come a time when we decide what path to take and I do not condemn those who take the wrong path, one can so easily be lured into it.
Maybe this is just my Swiss heritage talking; I believe my entire University year knows how absurd I find the allegations about the tax evasion and abolishing tax havens, as I had rather heated arguments about it with my International Business Teacher. Where there is a tax hell as in Germany people will seek havens, its how we are designed.
But let’s look at it realistically, insider trading is morally wrong! There is a platform of integrity, devotion and professionalism, these are the founding pillars of every job, every company and every industry. That should be no different for a hedge funds, where a fair and competitive environment is quite simply a must. However, the fact of life is that someone shall always have an advantage over another person or company in one way or another. Hedge funds reward on returns over professionalism, so how easy must it be to stray from the path?
Looking at the headlines this week, one could not miss the Galleon scandal, another fourteen have been accused, bringing the list to 20, making this the biggest Hedge fund scandal of all times. Of the accused five have already pledge guilty, in the hopes of obtaining some sort of deal. Although this scandal only involves $40 million, it has far reaching effects, as this is the beginning of a more controlling and action taking era on behalf of the government, compared to before when hedge funds were kept on a rather lose leach. This was the case a, it is a very difficult process to follow on a daily basis, a company like Galleon used to do more then a 1000 stock trading’s a day, how does one analyse such data, how does one know which of those are insiders? Authorities claim that more of these cases are to come e.g. S.A.C. Capital Management and are asking anyone who has been involved in insider trading to come forward voluntarily. This insider trading arrests were handled in a rather uncommon way, phone tabs were used, wiring etc… these people are now treated like criminals, like mobsters… The scandal does not stop at Galleon and its employees but further involves high rolling firms such as McKinsey, IBM, Google, Hilton hotels and also lawyers as well as investors, amongst many others.
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The funder of Galleon, Mr. Rajaratnam from Sri Lanka, denies any allegations and was released for a bail of $100 million, could there be a more outraging sum? However, the court was afraid that he might skip out on them and leave the country. Yet it has been proven through phone call conversations, although they were very prudent using pre paid phones, that he was actively involved, there is also an ex employee who has become the main witness against Mr. Rajaratnam, who shall allegedly prove his guilt. However, to date those who have pleaded guilty do not in anyway inflict Mr. Rajaratnam, they do not say that they traded on behalf of the Galleon company, but merely for themselves.
I believe that this has become such a sore subject as people feel betrayed, they are losing everything, unemployment has reached the 10% the highest rate since 1980, so way should somebody ride on the wave in an unjust manner if they can not? It is more an outcry for some sort of justice from the population and an outcry for a scapegoat for the government, trying to hide all the other things that are going so wrong.
Looking at the different sources, this was an interesting read; this week I focused more on how the newspapers approached the topic. The Swiss newspaper NZZ, as always gave the facts and was very neutral, stating who was arrested why and what shall happen, rather briefly. This was written for someone who is already acquainted with the topic. They also give a brief quote of the FBI, but they are truly trying to stay objective. The New York Times is written like a gossip paper giving loads of overdosing information, things that are completely unnecessary. It is extremely details, giving information about every single arrested person and also writing a whole article on Mr. Rajaratnam himself. They are trying to bring the news to the people. They also have many quotes from the FBI, and from the attorney working the case. It nearly seems as though they act on behalf of the government, trying to smoke out other insider traders. To be honest if one is really interested about the topic this shall give you the most detailed information, although I thought one could erase three quarters of it.
The Daily Mail was an interesting read, as they had two articles on the subject, one with the usual slandering, outrages attitude and the other rather straight forward, no harsh words, just facts. However, the articles seem rather badly research or they are trying to push outragesness to another level, as the $4 billion that the hedge fund managed, suddenly turned into $7 billion, that’s quite a difference. In the second one the language is also what one expects from this newspaper, “savvy managers”…. Their perspective is rather juicy, whole phone call conversations are listed. Reading it, everyone is as guilty as possibly can be, it leaves no doubts. It really is selling the story, cost it what it may. The Telegraph also used this outrages approach, 20 offenders suddenly become 35, they also go in depth how these people managed to get away with this insider trading for so long. Exactly detailing how and which sim cards where used what code names etc… They are also mocking the government and the system of sorts calling it a merely “casual betrayal”. To me these two papers were a rather amusing read, I like the outrages, the blown out of proportion, I can literally see people sitting at their kitchen table making themselves an absurd opinion based on these article, it actually is rather sad.
I red the Economist just for background information, it was as usual a little dry, but gave all the information I was seeking. The Reuters article was different to its usual style of writing; they were making fun of the whole process, comparing it to the Sopranos TV series. They are rather descriptive but not of broad facts, stating what we can expect, or how this came about or anything of that sort, they are concentrating mostly on the ridicule of the situation and of the people involved. They are also completely in favour of the state; I wonder why the articles this week are not as objective as usual? I also red a German newspaper N-tv ,just to really get a good idea of how different media is covering this topic in different region, countries and continents. The first three paragraphs are word for word the same as the Swiss newspaper, I wonder who copied who? However, after that it takes a different focus on the topic as the others, focusing more on the fact that Mr. Rajaratnam was set free and what does that imply. They also define and state why this is wrong why one should not commit insider trading, are they having such problems themselves? Or do they feel that the German nation shall not have an as harsh opinion on the subject as many other countries? Who knows!
There shall always be a Gordon Gecco, in all industries, the sooner we accept this, the sooner we can look at the world as it really is, full of flaws, as we are flaws and yet it remains a miracle in itself.
Till next week,
S
Sources used:
NZZ
http://www.nzz.ch/nachrichten/wirtschaft/aktuell/insider_usa_hedge_funds_1.3977157.html
An der Wallstreet fliegen immer mehr Insider auf
05.11.2009
New York Times
http://www.nytimes.com/2009/11/06/business/06insider.html?_r=1&scp=2&sq=insider%20trading&st=cse
14 Charged With Insider Trading in Galleon Case
05.11.2009
New York Times
http://www.nytimes.com/2009/11/02/business/02insider.html?scp=3&sq=GALLEON&st=cse
01.11.2009
For Galleon Executive, Swagger in the Spotlight
NOT EVERYTHING AS IT SEEMS
Daily Mail
http://www.dailymail.co.uk/money/article-1225603/Galleon-probe-leads-arrests.html
Galleon probe leads to nine more arrests within insider trading network6.11.2009
Daily Mail
http://www.dailymail.co.uk/news/worldnews/article-1221034/Six-face-insider-trading-charges-Billionaire-hedge-fund-manager-arrested-20million-scam.html
Billionaire hedge fund manager arrested over $20million insider trading scam19.10.2009
The Economist
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14710676
All at sea
22.10.2009
Telegraph
http://www.telegraph.co.uk/finance/markets/6510167/Further-arrests-in-US-insider-trading-inquiry.html
Further arrests in US insider trading inquiry
05.11.2009
Reuters
http://www.reuters.com/article/hedgeFundsNews/idUSLNE5A501M20091106?pageNumber=2&virtualBrandChannel=11604&sp=true
U.S. insider trading probe widens
06.11.2009
N-tv
http://www.n-tv.de/wirtschaft/Immer-groessere-Dimensionen-article578602.html
Geständnisse in Hedgefonds-Affäre
05.11.2009
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