Wall Street has been prominently plastering the news in recent weeks. In addition to the high profile, low impact protests of the Occupy Wall Street movement, there has been the most noteworthy insider trading scandal to hit the epicenter of America's high finance.
The Congressional Budget Office recently published a report that the after-tax income of the top percentile of Americans increased by a staggering 275 percent in the past 30 years, as opposed to just an 18 percent growth for the bottom fifth of the population.
This new data reinforces the widespread belief that there is an expanding income gap. The notion has been the crux behind the Occupy movement and shrinking it has been a main objective of many recently proposed tax plans.
Whether or not that is the end goal is a different story altogether. Both Herman Cain's 9-9-9 (or 9-0-9 for some Americans) plan and Rick Perry's flat tax plan would actually help the rich by cutting their taxes while making life even more difficult for Americans of modest means.
And yet, amidst all of these lush pastures for America's elite, is there a silver lining for the disenfranchised 99 percent? Perhaps the conviction of hedge fund manager Raj Rajaratnam is a beacon of hope, indicating that even a man who had it all cannot get away with murder- which in this case is insider trading.
Rajaratnam was implicated in a four year long case that led to more than fifty arrests. His conviction was at the time the most important in the case. Rajaratnam is the world's wealthiest Sri Lankan and his wealth was recently estimated at $1.8 billion. He was sentenced to 11 years in prison after being convicted, with substantial evidence- including wiretaps, of using insider information to earn tens of millions of dollars.
One of the colleagues from whom Rajaratnam got his information was Rajat Gupta, the former managing director of McKinsey and Company, one of the world's preeminent consulting firms. Gupta also served on numerous boards of elite companies, including Procter and Gamble and Goldman Sachs.
It was in his capacities as a board member at Goldman Sachs that Gupta learned some of the most valuable information that he passed on to Rajaratnam. This included, but was not limited to telling him when Goldman Sachs' stock was going to drop and giving him advanced warning when Warren Buffet injected $5 billion into the struggling company.
Yesterday, Gupta, who is Rajaratnam's close friend and business partner in several ventures, was arrested on charges linked to this sharing of privileged information. He joins other South Asians on Wall Street implicated in this sting, including Anil Kumar and Rajiv Goel.
Perhaps it seems a bit strange at first that four of the major players uncovered in this operation all hail from an ethnic group that makes up a miniscule percentage of Wall Street executives. However, Rajaratnam himself refuses to believe that racism played a part in his demise. Rather, he feels betrayed by his South Asian colleagues.
One possible reason for this stems from a difference in culture. If he were in Sri Lanka, Rajaratnam claims he could have paid the judge to get his case thrown out. It is not that laws forbidding insider trading do not exist in Sri Lanka, just that they can be avoided if you know the right people or have enough money.
Another possible explanation was the driving force of being an outsider in the community they were striving to join. Rajaratnam met several of his closest South Asian business partners in business school, where they banded together, so to speak, to break into the exclusive club that is finance in New York.
Neither of these reasons justifies breaking the law. As some of the most trusted and well-off businessmen in America, Rajaratnam and Gupta surely must have known the law and that they were breaking it.
What's more, neither of these reasons proves that the case was targeted at South Asians. What actually happened was that the government had an informant with access to many different funds and they chose to start with Rajaratnam's because it was the largest. No evidence was doctored nor is there any other evidence that a prejudice was shown by the prosecution.
Gupta has plead not guilty and his lawyers will most likely argue a ‘no quid pro quo' argument- meaning that he did not make any direct financial gains from giving information to Rajaratnam. This defense will likely not work, but that largely depends on whether the judge admits wiretap evidence or claims it in hearsay.
So if the main message to be drawn from this scandal is not that South Asians were unfairly targeted, what is it?
The take-away point from this is that no company is safe. If the world's most respected financial institution, consulting agency, and consumer goods corporation cannot secure their boardroom from releasing privileged information, where does it end? Hopefully, this is a one-off occurrence and not an epidemic. Needless to say, the investigations will not end here and only time will tell what they yield.
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