If the country duo Big & Rich sang liberal public policy instead of country songs, their hit single, “Save a Horse, Ride a Cowboy” would likely be a twangy anti-Wall Street masterpiece. Something Michael Moore could proudly blast in his publisher’s jet. Something like “Save a Horse, Ride a Trader.”
Headlines of late ooze with stories of insider trading on Wall Street. At the center of this drama, is the high-profile trial of Raj Rajaratnam, the billionaire entrepreneur and founder of a hedge fund management firm called the Galleon Group. With the assistance of the FBI and the U.S. Attorney’s Office for the Southern District of New York (U.S. Attorney Preet Bharara’s office), the SEC charged Rajaratnam with insider trading.
Remember, last year, when we heard 33 probes busted SEC staffers and senior-level officials for on-the-job porn fests? Yes, the SEC is the same agency that’s leading the charge on wiretapping and prosecuting former hedge-fund managers like Rajaratnam. Go figure.
The Rajaratnam investigation has all the dramatic bells and whistles that the mainstream media loves, including the related trial of hedge fund manager Danielle Chiesi, who pleaded guilty in hopes of softening her sentence.
Chiesi had at least two affairs to gather her intel, which she periodically shared with Rajaratnam: One with her married boss and another with a former IBM executive whose wife had multiple sclerosis. Known for her come-hither clothing and an aggressive personality, she peppered her sweet advances with the F-word as deftly as a South Park cartoon.
The Atlas Society argues that Chiesi’s immorality does not necessarily make her a criminal: “The only theoretical basis for charging Chiesi with a crime, so far as I can see, is the notion of perfect competition, according to which all market participants are supposed to be possessed of equal information. That notion is not just absurd, it is an attack upon reality. The attempt to make market participants adhere to such a standard, under penalty of prison, is currently one of the most oppressive assaults against the free market.”
Who’s riding the traders?
The SEC’s culture of brownnosing and political gaming is at the heart of many insider trading prosecutions on Wall Street. Recently, there has been a clear shift from relying on whistleblowers to a pugnacious, made-for-Hollywood show and a shady SEC program where bank execs can buy their way out of jail time. The Rajaratnam investigation, for instance, has involved FBI dawn raids and wiretapping no less than 500 individuals.
Rolling Stone reports that the SEC has ignored and even fired major whistle-blowers, and, has repeatedly taken politics into account when recommending cases to the DOJ. For example, the SEC gave quasi-government entities Fannie Mae and Freddie Mac monetary slaps on the hand without jail time in 2003 and 2006 for deceitful activities.
Rolling Stone’s report shows that employees in the SEC, DOJ and on Wall Street are in the habit of moving back and forth and “…constantly switching sides and trading hats.” SEC officials have a shot at lush jobs on Wall Street or as partners in top law firms after their stint at the SEC. So, it is to their advantage to buddy up with Wall Street and regulator impartiality is dubious.
The SEC’s Wall Street “top cop” is the director of enforcement, Robert Khuzami. He has said: "Raj Rajaratnam is not a master of the universe, but rather a master of the Rolodex." Big deal. Most successful people are well connected. The question is whether Rajaratnam committed fraud.
Khuzami has received criticism from well-known whistleblower and former SEC investigator, Gary Aguirre, for rolling out a “cooperative initiative” that he described to Rolling Stone as: “First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC. Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."
Will throwing a few high profile people in prison on insider trading charges repair the economy and revitalize ethics? The Guardian reports that many insider prosecutions do little to nothing to stop the practice, and, the trading itself may not be inherently destructive to the market. The New York Times has reported that, “Insider trading does not appear to have any appreciable effect on the markets, at least as measured by the volume of trading that occurs.”
If execs can avoid jail time by negotiating with the SEC, Brahara’s high-profile trials appear to be a circus show for the American public. Media professionals will cast a blind eye as long as they can splash headlines with rich people getting perp-walked. For, these hyped trials send Michael Moore’s favorite message: Wall Street is evil and capitalism causes greed.