Rajaratnam Ripples: How Public May Be Hurt

Rajaratnam guilty on all 14 counts of conspiracy and securities fraud. The Raj Rajaratnam verdict has generated some desk chatter but has no relevance to market activity. Most traders had no sympathy for Rajaratnam in the first place.

  • Missed the Trial? Listen to What Happened

But the knock-on effects have been notable. Companies are paying much more attention, it seems, to Reg FD, which says publicly-traded companies must disclose material information to investors.

Traders have noted that just the fear of prosecution and being in the headlines has made companies pull back in the amount of information they offer investors. Many traders believe that companies in general have restricted communications between employees and analysts.

Analysts I have spoken with also agree that their job has gotten much tougher, that it is harder to get information from companies.

This also happened several years ago after there was a settlement with Wall Street firms on how they compensated analysts. With a higher wall put up between analysts and the capital markets desks, the pay of most sell-side analysts plummeted, and the best and brightest left and went to the buy-side or got out of the business altogether.

The quality of analyst commentary declined, and many analysts simply stopped talking to anyone who was not a direct client.

My concern is that this will happen again: companies will seek to further restrict information that is given out to the public, analysts will have less information, fewer companies will be covered, and the public in general will have less information on which they can trade.

I am not endorsing Mr. Rajaratnam's behavior, far from it. But I do not want corporate America to go into a hole and unleash an army of compliance officers on the world whose sole job is to restrict the information available to the public.


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