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Raj Rajaratnam: GUILTY ON ALL COUNTS!!

Posted by Larry Doyle on May 11, 2011 10:43 AM |

In the case of Raj Rajaratnam, he was just found guilty on all 14 counts.

I am sure he will appeal this verdict. That said, under the sentencing guidelines he faces up to 20 years in the sin bin. Let’s revisit the story I highlighted on Rajaratnam back in the fall of 2009 when he was initially indicted.

Fatal Character Flaws Bring Down Wall Street Titans 
Posted by Larry Doyle on October 20, 2009 8:49 AM | ShareThis | Edit

How is it that an individual with untold hundreds of millions of dollars in wealth could put himself in a position of risking it all?

Welcome to the world of Raj Rajaratnam, the owner of the hedge fund Galleon and the major kingpin arrested in the most recent insider trading scandal to rock Wall Street.

Who is Raj Rajaratnam and why would he take such professional risks? We learn about Rajaratnam from a London based financial site,Here Is The City:

He was born in Sri Lanka, attended S. Thomas’ Preparatory School, Kollupitiya, then moved to England to complete his schooling, and studied engineering at the University of Sussex. Rajaratnam earned an MBA from Wharton in 1983. He is married with three children.

Rajaratnam, a Tamil self-made billionaire hedge fund manager, is the 236th richest American according to Forbes (2009), with an estimated net worth of $1.8 billion.

The hedge fund manager started his career as an analyst at the investment banking boutique Needham & Co., where his focus was on electronics. In 1991, he became the President of the bank at the age of 34. At the company’s behest, he started a hedge fund, Needham Emerging Growth Partnership in March 1992, which he later bought and renamed ‘Galleon’.

Initially invested in technology stocks and healthcare companies, he says his best ideas come from frequent visits with companies and conversations with executives who invest in his fund.

He has made more than $20 million in charitable donations in the last five years. In September 2009, Rajaratnam pledged to donate $1m to help the Sri Lankan government with the rehabilitation of former LTTE combatants. He has also donated generously to clear land mines in the war-affected areas in Sri Lanka, and was also a contributor to various causes that promoted development in the Indian subcontinent and programs that benefited lower income South Asian youth in the New York area.

With this pedigree, why would Mr. Rajaratnam put himself in a position of risking his fortune, his firm, his family, his reputation and ultimately his freedom? Obviously, Mr. Rajaratnam and every other individual involved in this insider trading scandal is presumed innocent and is entitled to due process. That said, he faces an uphill battle given the fact that the Feds employed wiretaps and have numerous individuals closely aligned with Mr. Rajaratnam cooperating with the investigation.

Let’s return to my question as to why Mr. Rajaratnam or others may take this degree of risk. While I have not had direct experience with anybody involved in an insider trading scandal, I have had plenty of experience with individuals for whom no amount of money is ever truly satisfying. These individuals are driven and truly define success in their lives by one number. What number is that? Their net worth.

While not everybody who possesses such a fatal flaw engages in illegal activities, that character deficiency can be extremely dangerous if not professionally fatal. Regrettably, the fatality often brings down numerous other individuals in its wake.

I witnessed this character flaw amongst certain senior executives at Bear Stearns. I witnessed it amongst partners of the hedge fund, Long Term Capital Management. For those unaware of LTCM, the failure of this hedge fund brought the markets to its knees in 1998. Many on Wall Street were well aware that LTCM partners had pronounced that their goal was to become billionaires. A mere few hundred million dollars would not suffice. (To read more about LTCM, check out a post I wrote on March 18, 2009, entitled “AIG and LTCM“).

We will learn more about Mr. Rajaratnam in the weeks and months ahead. Rest assured, the web that has entangled Mr. Rajaratnam will encompass other ‘masters of the universe’ on Wall Street. While I am no psychologist, ‘having seen this movie before’ I am willing to bet that the character flaw which drove certain former Wall Street titans to prison and firms into the grave will once again play out here in 2009 and 2010.


How much is enough?

While a number of individuals have already pled guilty to insider trading, where will this verdict lead prosecutors? Will it pressure other individuals currently in the crosshairs of the Feds to cop a plea?

Dare I ask when regulators and prosecutors will truly shine a light inside the regulatory agencies themselves, the large money center banks, the mutual funds, and elsewhere. To think that the nefarious activity on Wall Street merely rests within a handful of hedge funds would be exceptionally naive.

Are the virtues of truth, transparency, and integrity finally being embraced?

Thoughts and comments encouraged and appreciated.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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