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Transcript of Bussiness Ethics
Group. He was able to create a successful firm due to his strong analytical background, while also being involved with several illegal acts of insider trading. His large network and contacts with other financial players gave him leverage to gain confidential information for companies such as Intel, IBM, McKinsey, Goldman Sachs, and Google. During his unethical practice he was able to raise $64 million in fraudulent activities. Rajaratnam was charged on 14 counts of securities fraud and conspiracy and was found guilty in May of 2011.
Summary of The Case
Concepts from Chapter:
Insider Trading (unethical)
Violate Rights of Shareholders who own resources (information) that fuel the success of the company
Executives, managers, and employees do not own these resources
Unfair to participants of stock trading industry because they (inside traders) gain information that has not be publicized (advangtage)
Downsizes the market (harmful effects on companies)
When more investors suspect insider trading, the more they leave the market
Primary Concepts in The Case
It is clear that insider trading is illegal because it is unfair to all other equal parties in markets, so if one was to be put in a situation where that acts of insider trading was happening it is important that the ethical standards held high in the business world b identified when violated. The trading should have been stopped in the very beginning or authorizes should have been aware the longer time led on the worse of a finical impact it became. People should not have allowed the information to be passed along no matter the payout. One should of walked away from the situation of at least tried to stop it.
Steps to Moral Standards
Raj Rajaratnam, an analyst in the investment banking boutique of Needham & Co. in 1985. Raj was able to develop a hostile networking and note-taking research method which granted him the power to make precise predictions about companies’ financial situations. This then lead to the development of Rajs’ own company called Galleon. Raj was able to obtain inside information on other companies that he was networking with such as: Goldman Sachs Group, Intel Corp., McKinsey & Co., and Applied Materials, Inc. Raj, overall, was committing acts of illegal trading which consisted of securities and wire fraud with an income of over $63.8 million, all from insider tips. Raj, later on, became under investigation and had been taken to court. Twenty-six people were found guilty for fraud and conspiracy.
The Ethical Dilemma
Case Study: Insider Trading at The Galleon Group
Instead of taking and using insider tips to acquire a wealth for his own company, Raj could have just maintained an ethical state of mind and hired individuals as analyst to examine companies’ financial. In this sense, there would be no illegal acts committed. Raj would still make an income for his company and execute it in a professional and ethical manner.
Raj could have used his method to build up the Needham & Co. he was already working for. However this would still be illegal and unethical. Raj without a doubt could have stayed an analyst at Needham & Co. and not have to worry
Alternative Courses of Action
Insider Trading is an Unethical Practices (Ethical Implications)
. Insiders have access to information that is not given to the public. Unequal possession of information is an advantage that cannot be competed away because this advantage depends on a lawful privilege to which an outsider cannot acquire access.
, the greatest good for society is not achieved in the long term. It is true that insider trading may increase market efficiency in the short-term. Yet, insider trading may in fact, decrease efficiency in the long term. Unfairness offends human sensibilities and people may either punish those who treat them unfairly, or opt out of the game. Thus, investors may stay out of the market if they see rampant insider trading. If enough investors stay out of the market and instead, say, buy government bonds only, market efficiency will be harmed. Indeed insider trading has negative consequences for investors and markets. Analyzing the Rajaratnam case uncovers these negative consequences.
Case Study Questions
Brandon Oatts, Marveetes Brown, Seth McCormick, Jamal El-Amin, and Darien Penny
1.) Are information gathering techniques like Rajaratnam's common on Wall Street? If so, what could regulators, investors, and executives do to reduce the practice?
Rajaratnam technique in gathering his information was, phone calls meeting, 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’s 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.
2.)What are the implications of sharing confidential material information? Is it something that would affect your decision about how to trade a stock if you knew about it?
The implication that can be drawn from sharing confidential material information is that it’s 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 its illegal and our justice system does not give s the legal right to do so.
Case Study Question cont...
3.) Do you think t secret investigation and conviction of Rajaratnam and other people in the Galleon network will deter other fund mangers and investors from sharing non-public information?
Rajaratnam conviction will not change other fund managers, and investors from sharing non-public information, but the justice system did make an example of Galleon Group. Lets 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 then the benefits. Whereas if I was to evaluate the situation I would directly back out of inside trading if it met going to jail. With other companies it’s 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.
2 Additional Concepts
Duty of Disclosure
Seller (inside man) has the obligation to disclose certain information about the product the consumer is trying to buy, unless it holds risk and potentially harm the consumer.
Conflict of Interest
Employee (inside man) has an interest that gives him or her an incentive to do the task in a way that serves interest.
The conclusion would be, insider trading is illegal and negative for you and your company, an can cause your company to close. Before deciding weather you want to cheat the system or not you should think about the people you are effecting, Yes it's a practice that is wrong but is often used but no matter how you look at it insider trading is illegal and common on Wall Street.