Goldman Sachs paid $550 million to settle SEC charges that it misled investors about a complex investment pegged to subprime mortgages, but the Justice Department has not acted on the matter.
Holding people criminally responsible for the financial crisis would require reconstructing past events and overcoming arguments that broader economic forces were to blame, white-collar lawyers said.
In contrast, the Rajaratnam case involved one of the oldest and simplest crimes on Wall Street: trading on stolen information. Proving insider trading has often been difficult, but the FBI and other authorities were able to build their case in real time, capturing conversations as they transpired.
Rajaratnam “hung himself with his own words, as caught on tape,” Sabino said.
According to government transcripts, this was Rajaratnam talking on the phone on Oct. 24, 2008: “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are gonna lose $2 per share.”
And this was Rajaratnam talking about a deal involving another company on Oct. 7, 2008: “We know because . . . one of our guys is on the board. We know that they’re gonna put $41 million in escrow.”
And this was one of Rajaratnam’s tipsters on July 24, 2008, telling him that a company planned to issue a more pessimistic earnings forecast: “They’re gonna guide down. I just got a call from my guy. I played him like a finely tuned piano.”
One of Rajaratnam’s alleged sources had been a member of the board of Wall Street powerhouse Goldman Sachs and is a former head of the international management consulting giant McKinsey & Co. He allegedly tipped Rajaratnam to the fact that Berkshire Hathaway Chairman Warren Buffett was going to make a crucial investment in Goldman Sachs at the height of the financial crisis.
The parade of witnesses at the trial in federal court in New York included the chairman of Goldman Sachs, Lloyd Blankfein.
U.S. Attorney Preet Bharara said in a statement: “Rajaratnam was among the best and the brightest — 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.”
Rajaratnam was the 35th person — and the most prominent — to be convicted of insider trading in the Southern District of New York in the past year and a half.
A prosecutor asked the court to have him held in jail until his sentencing in July, but a judge released him to home confinement with electronic monitoring. Rajaratnam had previously posted a bond of $100 million.
A Justice lawyer told the court that, by a conservative interpretation, federal guidelines point to a sentence of 151
2 to 191
Speaking at the federal courthouse in Manhattan, defense attorney John Dowd said he plans to appeal.
The stakes were high for both sides, as J. Robert Brown Jr., a professor at the University of Denver’s Sturm College of Law, noted.
Given the extraordinary evidence the government amassed against Rajaratnam, Brown said, had the verdict gone the other way, “it would have made insider-trading cases against Wall Street traders almost impossible.”
Brown predicted that the verdict will force insider traders to exchange information “in a more devious manner,” but he doubted it would hamper insider trading.
“The money in this area is too big,” he said.
Staff writer Zachary A. Goldfarb contributed to this report.