Financial Institutions and Risk Management

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COMPARATIVE BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
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Executive summary
Stock exchange markets are one of the main sources where a large number of
individuals obtain earnings. Through them, highly intelligent traders have managed to earn
millions, while at the same time many people have attained significant losses in the trading
activities. This aspect reveals that individuals with knowledge and understanding of how
trades occur have significant chances of earning a fortune from the same. A large number of
organizations have recently been established to help investors trade their money and obtain
significant gains. An important aspect of consideration with these trades is the aspect of
information and knowledge. The ability to predict the future occurrences correctly simply
differentiates between individuals that obtain a lot of gains from the stock exchange markets
to the individuals that do not. There is however the acceptable ways and methods which are
allowed for individuals to obtain and use information regarding stock exchange, and there is
also certain methods that individuals in wall-street use which are not acceptable. This paper
assess the case of insider trading which took place in Galleon Group that was being led by
Raj Rajaratnam. It analyses the ethical implications of the case and the recommended
operations which could have been better in the case of the individuals in question.
Introduction
Wall Street trading is considered to be one of the main sources of money where
individuals manage to obtain wealth of massive amounts within a very short period of time.
The ability of the analysts and traders to make decisions that will provide them with
monetary returns is dependent on their ability to predict possible occurrences and changes in
stock and currency in future. The information that these individuals have regarding the
organizations that they trade is very crucial and also determine whether they will have the
ability to make profitable trades and provide gains for their investors. With this regards

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therefore, the role of trade analysts which is mainly to gather information regarding the
different firms whose stock the organization trades is significant and determines the
profitability of the organization generally. Being the leader of galleon group, Raj Rajaratnam
is one of the individuals that managed to obtain significant gains from the trading of stock
and funds in the stock exchange markets. He however utilized unacceptable and unethical
methods of obtaining information that helped him gain an advantage over other traders, an
aspect which resulted in his being arrested and convicted for 11 years in prison and fined a
large sum of money (West, 2014).
Case explanation
Raj Rajaratnam is one of the highest skilled data analysis, capable of gathering and
analysing data to give advice on the best way to trade and make important hedge funds
decisions. He attained his MBA degree in the year 1983, in which he specialized in the
computer chip industry. He was later hired in the investment banking boutique organization
known as Needham & Co. this organization significantly influenced Raj Rajaratnam and
made him completely understand how the hedge fund trading organizations work. He was an
analyst in this organization when he was initially being hired, until he began moving up the
ranks and eventually managed to become the president of the organization. As president of
the organization, Rajaratnam managed to make significant achievements with regard to
aspects about returns on the investments and he became the individual that was relied upon
by many individuals. This aspect however, later became a concern for many individuals in
the organization. His personality and role in managing the organization, fund managing and
stock analysing led to many conflict situations in the organization. Concerns for his
personality led to a negative aspect towards the organization. They, for example, led to the
organization not to continue merging with the Webber and Co organization which had an
interest in the accusation of the Needham organization (Ferrell, Fraedrich, 2012).

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Rajaratnam later left Needham organization and went to set up his own organization
which he called the Galleon Group. He took with him a number of employees from
Needham, whom he began the organization establishment with. The Galleon organization
was also a hedge fund organization, which was aimed at investing money for investors and
giving them returns for their investments as profit. By this time, Rajaratnam had managed to
establish a reputation for himself and for his firm. He has attained a network of employees
and executives of the large organizations in the world among which include Intel, IBM,
Hilton and Sun Microsystems among others. He was also found with a number of unlawful
operation in his firm, occurrences that eventually led to law suits by certain individuals and at
the same time caused significant amounts of fines to the organization. The organization, was
for example forced to pay a large sum of money due to an issue regarding tax evasion which
it was accused of having involved in (Ferrell, Fraedrich, 2012).
The main issue which led to the conviction of Rajaratnam, however was when it
became possible to prove that he was obtain confidential information from individuals in
different organizations and utilized that information to trade more wisely. SEC lawyers
explain this as fraud of the highest level, mostly because it gives the trader an advantage over
the organization and other traders, thus allowing him or her to win trades unlike other less
informed traders who simply relies on their prediction skills to place their trades and hope for
the best. The investigators in his case realized that Rajaratnam had managed to establish a
network of individuals in the major firms and thus through them, he managed to attain
information regarding the firm and other individuals involved and then utilize it to make wise
trades and achieve significant gains. With this understanding, it is clear that
Are information gathering techniques like Rajaratnam’s common on Wall Street?