March 09, 2011
Idle Thoughts on Raj Rajaratnam and Rajat Gupta
Posted by Usha Rodrigues

The insider trial of Galleon group founder Raj Rajaratnam begins this week.  I haven't been following the case that closely, but offer up these thoughts.

1.  Curmudgeonly thought.  Again and again this trial is called "the biggest insider trading case in a generation" (see today's FT front page and this Dealbook piece for 2 examples)  Really?  Martha Stewart was indicted  a mere 8 years ago.  In terms of money at issue, clearly this case is bigger.  But Raj Rajaratnam, big man in Manhattan though he may be, doesn't hold a candle to Stewart in the popular imagination.  In 2003 I remember telling the farmer who sold the best apples at the Arlington Farmer's Market that I was a lawyer.  His immediate response was, "Did the government have to go after Martha?"  I doubt he knows who Raj is.

Update: OK, OK, Martha Stewart wasn't indicted for insider trading, as Christine and Steve Bainbridge have kindly reminded me, but for obstruction of justice.  Serves me right for idle-thought blogging, and for being curmudgeonly!

2. Embarrassed-for-my-heritage thought. To the extent the larger public does care, do they see this case as a "rich people always try to cheat the system" kind of incident?  Or a "Even if you take Indians out of India, they can't mend their third-world, cheat-the-system, corrupt ways?"  The FT discusses this today in the context of the SEC's charges against Raj Gupta, "widely revered in Indian business circles as a man who had scaled the heights of corporate America by becoming McKinsey's global managing director."  Couple this with high-profile corruption scandals in India going on right now, and it's hard for this American of Indian descent not to feel like we're not showing at our best right now.  But maybe others don't see it that way?

3.  Doesn't-he-get-the-law? thought.  Andrew Ross Sorkin noticed the same thing I did:

Having said all that, there is something mystifying in the statement that Gary Naftalis, Mr. Gupta’s lawyer, made the day he was sued. “Mr. Gupta has done nothing wrong,” Mr. Naftalis said. “There is no allegation that Mr. Gupta traded in any of these securities or shared in any profits as part of any quid pro quo.”

Read those words again. He didn’t say Mr. Gupta didn’t pass on material nonpublic information or that he didn’t breach his fiduciary duty. All he said was that his client wasn’t getting paid to do so. Maybe Mr. Naftalis was going only for a short sound bite, but it is odd.

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