Rajaratnam Insider Trading Trial Judge Outspoken Against Insider Trading Outspoken In Prior Cases. Prevention With Data Mining

“This was not a simple and singular lapse of judgment, but an egregious breach of trust, a fraud, pure and simple by a person who had no moral compass.” These are the words of Manhattan federal judge Richard Holwell who is presiding over the trial of Raj Rajaratnam in the largest insider trading case ever. Rajaratnam, Founder of the hedge fund company Galleon Group LLC, is accused of making $45 million on illegal trades based on insider tips including those from former Goldman Board Member Rajat Gupta who has been charged by the SEC with insider trading. Those comments by Judge Holwell involved the sentencing of Eugene Plotkin in 2008, then a 28 year old former Goldman banker who pleaded guilty to insider trading. His defense counsel made an impassioned plea to impose a sentence below federal sentencing guidelines because of Plotkin’s you and also because his co-defendant was the mastermind of the scheme. The judge refused and sentenced him to 57 months in prison (four years plus). If found guilty, Rajaratnam could face from 10 to 20 years in prison. Rajaratnam’s trial began yesterday and the government says it has over 2,400 wiretapped conversations with 130 people involved and inside tips on 37 companies. The judge has already ruled the tapes admissible. What appears to be unfolding is a concerted effort by the government to crack down on insider trading, which some think is much more commonplace than the public knows. Obviously the government has worked the investigation for years and given the mass of evidence from Rajaratnam’s own words, a conviction appears likely. Then on to the next trial and the next, the ultimate purpose to deter the practice of insider trading. But will this subterranean pervasive wrongdoing still continue and can trials and investigations alone deter this kind of crime or will the methods of information passage simply morph to a more sophisticated transmittal mechanism? As mentioned in this blog yesterday, in my opinion, there are much more refined ways of halting the practice through more pervasive tracking of trades and the timing of those trades and timing of the release of information. This involves machine learning technology and data mining tools running across the board of major trading activity not just here but worldwide in all exchanges. The cost is relatively low to right the market and the unfair advantages now existing. A closer examination of the timeline of the information flow in the Rajaratnam and Barai trades would be instructive and the basis of a great article for The Harvard Business Review. It would, I believe reveal that with present off the shelf technology, the trades would have been shown immediately to have been impossible without insider info. Stay tuned.