Running head: INSIDER TRADING AT THE GALLEON GROUP

Insider Trading at the Galleon Group

Shauna Castrejon, Scott Peterson, Dora Singh, Angela Jackson

National University
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Overview/Dates

Facts/ Issues

Insider trading suggests the buying and selling of a company's stock with information that

could only be known via someone who works "inside" the company. Most cases arise from

employees directly using the knowledge to their benefit although employees are obligated to

report noteworthy trades they make with the shares of their own company, so there is an

overseer. Insider trading could also be having knowledge of conceivably a future event inside

a company or business and unethically trading its shares in order to make an

unlawfulunlawful profit from it. It can be the use of ones financial position or companys plans t

hat are not available to public. Put simply, insider trading creates a situation in which

stockholders pay more than they should when they buy and get less than they should when they
should sell. The Galleon Group was a privately owned hedge fund firm that provided services
and information about investments. The group was founded in 1997, and attracted employees
from Goldman Sachs and Needham & Co. The company made its profit and other companies by
choosing stocks carefully. Raj rajaratnam was an analyst for Needham for eleven years before
leaving to start Galleon Group; he took several employees from his previous firm of Needham.
In the years running Galleon group, Rajaratnam cultivated a flamboyant style of leadership. In
one stance he offered $5000 to anyone who stocks themselves from with a stun-gun. In response,
a member tried it and was hospitalized. Rajaratnams trouble with the law started in 2005 where
he paid over $20 million to settle a federal investigation into a fake tax shelter to hide $52
million. The group also paid $2 million in 2005 to settle an SEC investigation into its stock
trading practices (Ferrell, Fraedrich, & Ferrell, 2011). Rajaratnam had Intel employees leak
information about sales and production. Raj had deep network of acquaintances, even in
Goldman Sachs, and other corps. He was convicted of fourteen charges, and was guilty on all
charges; however Raj and his defense team plan on appealing the decision made. Raj Rajaratnam
technique in gathering his information was, phone call meetings, and texts. These are common
everyday devices we use. Since they are common they are also risky and easy to be tract back to,
and that is the last thing you want if you are participating in illegal activities. Executives should
avoid agreements to keep information confidential and giving heightened attention to business
communications between close family members or personal friends.
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The implication that can be drawn from sharing confidential material information is that
it is risky and unethically right. Also it can cause you to be in trouble with many people
including the law. Yes, this information would dramatically change my decision about how to
trade a stock because it is illegal and our justice system does not give us the legal right to do so.
Rajaratnam conviction will not change other fund managers, and investors from sharing
nonpublic information, but the justice system did make an example of Galleon Group. Let us say
Rajaratnam thought about insider trading before he did it. Rajaratnam would evaluate the risk
and benefits. To Rajaratnam he thought the risk was worth more than the benefits. Whereas if I
was to evaluate the situation I would directly back out of inside trading if it meant going to jail.
With other companies it is all about being number one, and being the best firm. In order to do
that companies have to have some type of edge on their competitors, so in some cases I believe
sharing non-public information to get ahead is that edge.
The insider trading scandal of Galleon Group also dramatically changed investigation and
prosecution of insider-trader activities. This case called for the federal government to be harsher
and step down on individuals that commit such fraud. It also marked the first time when the
federal government use wiretapping as a method to gather evidence against Raj Rajaratnam and
his associates (Crudo, 2015). Additionally this case called for the federal government to issue
regulations that prohibited illegal trading of insider information and clearly define insider trading
and its legality.
Galleon Groups actions left a lasting mark on Wall Street. Additionally, the fraudulent
actions of Raj Rajaratnam and his co-conspirators pointed out the need for a change in
the way Wall Street does business. This scandal left a lasting impact on the employees
that were involved with the case and those who worked at Galleon Group. Secondly, it
forced the federal government to modify the regulations that define and explain
insider trading. Thirdly, this case brought about awareness in the eyes of the public
thus changing the way people perceived the financial industry. Finally, the liquidation
of this $7 billion dollar hedge fund had a huge impact on the images and reputation of
corporations that were associated with the scandal.

Ferrell, O., Fraedrich, J., & Ferrell, L. (2011). Business Ethics: Ethical decision making and
cases (11th ed.). Boston: Houghton Mifflin.

Crudo, Timothy P., and Graham Ravdin. "The Galleon Cases." White-Collar Sentencing 41.3
(2015): 1-8.Http://www.coblentzlaw.com/images/uploads/content/white-collar-
sentencing.pdf. Web.
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Issues

Analysis

Final Result

Question #1

Question #2
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Question # 3

Updated Information

References
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