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Hedge fund manager Raj Rajaratnam convicted of insider trading

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“Because someone has access to an individual with inside information, why should that person benefit ... while the public cannot?” asks Stan Twardy, a former federal prosecutor for Connecticut who is now a partner doing white collar defense at Day Pitney in Stamford, Conn.

“[With] inside information, I can avoid taking a loss if something bad happens, or I can make a much bigger profit if something good happens,” Mr. Twardy adds.

“Rajaratnam was among the best and the brightest," said US Attorney Preet Baharara in a statement, "one of the most educated, successful and privileged professionals in the country. Yet, like so many others recently, he let greed and corruption cause his undoing.”

The message from the conviction is clear, said Mr. Baharara. “There are rules and there are laws, and they apply to everyone, no matter who you are or how much money you have.”

Rajaratnam’s conviction may cause some high-flying hedge funds to think twice about practices like the use of so-called “expert networks.” In the Galleon case, some of the "experts" gave specific, non-public corporate information.

“There is nothing wrong with experts – if they follow the rules,” says Twardy, who is not involved in the Rajaratnam case. “But people may hesitate to serve as experts – or use them – until all this sorts itself out.”

Some of the most damaging evidence in the Rajaratnam case came from FBI wiretaps. One captured a former director of Goldman Sachs, Rajat Gupta, telling Rajarantam of Goldman's interest in a commercial bank. Rajaratnam made $17 million on Goldman Sachs trades, according to the Securities and Exchange Commission, out of a total of $64 million illegally garnered. [Editor's note: The original version of this paragraph misidentified which information was recorded by the wiretap played during the trial.]

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