The Galleon Case Essay

1750 words - 7 pages

“Anyway, no drug, not even alcohol, causes the fundamental ills of society. If we’re looking for the source of our troubles, we shouldn’t test people for drugs, we should test them for stupidity, ignorance, greed and love of power” (O’Rourke “Greed Quotes”). The Galleon Group is precisely a story emanating a few members lust for power that was consumed by the essence of greed. Founded by Raj Rajaratnam and fellow partners in 1997, the Galleon Group quickly emerged to substantial wealth and incredible success as one of the largest hedge fund management firms in the world. Managing over seven – billion dollars in a series of funds that specialized in the healthcare and technology industries, the New York headquartered firm was on the fast track to stardom. Unfortunately, the firm became the center of a catastrophic insider trading scandal in 2009 which ultimately saw the demise of the firm as well as the apprehension of several avaricious individuals.
The Securities Exchange Act of 1934 oversees the regulation and registration of securities exchanges, brokers, dealers, and national securities associations. Furthermore, the act authorizes the Securities and Exchange Commission (SEC) to engage in market inspection to hinder practices such as fraud, market manipulation and misrepresentation (Miller and Cross, Legal Environment of Business). In addition, Section 10(b) and SEC Rule 10b – 5 concerns the area most associated with this particular case known as insider trading. Both legal and illegal, insider trading transpires when individuals obtain “inside information” about the strategy of a publicly listed corporation and then buys and sells securities based on the premise of this knowledge. Legally, corporate insiders are at liberty to buy and sell stock within their own companies as long as all trades are reported to the Securities and Exchange Commission. However, taking advantage of this arcane information that is unavailable to the public to affect the future market value of a corporate stock or to engage in fraudulent activities is declared illegal. Most importantly this rule applies to any individual, not just corporate officials who secure the intelligence of non- public disclosure on the basis of trading.
The Securities and Exchange Commission’s crackdown of the Galleon Group stands as one of the largest illegal insider trading scandals in decades. Of the fifty – three approximated individuals involved nearly thirty – four defendants were charged for their extensive and repeated offenses of insider trading by the SEC. The illegal activity of these corporate executives, consultants, rating agency personnel, proprietary traders, hedge fund executives and public relations personnel engendered the illegitimate accumulation of securities of more than ninety – six million dollars with fifteen different companies. More than half of the convicted offenders were granted settlements with the SEC for their cooperation in the case...

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