In Wall Street terms, the trial of Raj Rajaratnam is like Wyatt Earp and Doc Holliday against Johnny Ringo and the Clanton Gang, staging what could be the final showdown at the financial markets’ version of Tombstone.
Should the regulators prevail against the Galleon Group co-founder in the insider trading trial that began this week in New York, it will send a powerful signal to the people at trading desks everywhere to clean up their acts.
But if Rajaratnam wins, the loss for the enforcement side, coupled with the humiliating defeat against former Bear Stearns traders Ralph Cioffi and Matthew Tannin, might sound the death knell for prosecutions against insider trading.
“The case against Raj Rajartnam is so strong, with wiretaps, multiple cooperating witnesses, a really unsympathetic defendant, that I think if the prosecutor loses this case, the insider trading investigation is going to grind to a halt,” says Andrew Stoltmann, a securities lawyer from Chicago with 11 years experience in such cases.
“It would be great news for Wall Street, and I can promise you there are a lot of hedge fund managers and executives watching this trial closely and hoping the prosecutors lose.”
That scenario, in which Rajaratnam goes down in flames and sets the stage for a run against trader chicanery, is the more likely scenario, says Stoltmann, who cites six reasons why the defendant is dead meat:
- The “gold standard” of evidence: Wiretaps of 2,400 conversations with 1,300 friends, associates and accomplices will serve as living proof why gangsters always used to talk on pay phones. Hearing conversations among collaborators and not just dry legal arguments gives jurors the smoking gun they need to convict.
- Cooperating witnesses: The mob tries to leave no rats behind, but Wall Street often isn’t so lucky. Rajaratnam’s old buddies are lining up to dime him out.
- An unsympathetic defendant: Class envy is the order of the day in American politics, and it will be the case in this courtroom. Raj is worth $1.8 billion and lived a Madoffesque opulent lifestyle, giving the jury an ample serving of schadenfreude to exercise.
- Prosecutorial theme that will stick: Similarly, the prosecutors are likely to play the “unbridled greed” card that has proven so effective in the past. A jury likely to consist of blue collar folks in their late 50s will love hearing the plethora of schemes Rajaratnam allegedly cooked up to steal his millions.
- The “mosaic” defense: Rajaratnam’s team is expected to try to inflict death by a thousand cuts on the prosecution. But those types of nuanced arguments can get lost on a jury in such a complicated case.
- Ability to close the deal: The Southern District of New York has a pretty good batting average, winning about 90 percent of its cases. Though Rajaratnam is reported to have a $30 million war chest to fight his legal battle, he’s going up against a pretty tough team. Like Bill Parcells says, you are what your record says you are.
Should Stoltmann prove right, it could be a dark day for the seedy side of Wall Street.
“Prosecutors are a little like bullies. When they get punched in the mouth they tend to go away,” he says. “If they win and they get the conviction in the Galleon case, watch out Wall Street because prosecutors will be on the war path.”
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