Comparative Business Ethics & Social Responsibility Assignment
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Added on 2019-11-19
Comparative Business Ethics & Social Responsibility Assignment
Added on 2019-11-19
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Comparative Business Ethics & Social Responsibility1
a. Executive SummaryThis report has been prepared for demonstrating the impacts of fraudulent accountingactivities on a business entity. In this respect, the report has evaluated and analyzed the keyissues present in the case study of ‘Insider Trading at the Galleon Group’ for identifying anddemonstrating the significance of ethics in international finance. The case presents thedownfall of the Galleon Group due to fraudulent activities used by its co-founder Rajaratnam.The case has helped in developing an understanding of the significance of ethics and legalityin the activities of stock markets. The insider trading activities that resulted in the downfall ofGalleon has been now heavily penalized by the government and other regulatory bodies. Themajor learning that has been developed from carrying the overall research in the case ofGalleon Group is that is relatively impossible to completely deter the participants involved instock market from insider trading activities. This is because despite of the presence of strong laws and regulations in this context,the traders can find new ways to achieve the non-public information for personal benefits.The heavy penalties and fine imposed by the federal authorities and SEC on Rajaratnamthrough can deter fund managers in the future from involving in such fraudulent activitiesbout only to a short-term. The identification of newer methods for communicating besideselectronic surveillance that was detected in the case of Rajaratnam can lead to the widespreadoccurrence of insider trading activities again. As such, it has been learned from the case studyof Galleon that regulators need to be more careful and strict for monitoring the daily activitiesoccurring in the stock market. This will help in early detection of any suspicious activities onthe stock market and thereby minimizing the chance of its occurrence. 2
b. Section 1: IntroductionThe present report aims to analyze and examine the key issues involved in the givencase study of ‘Insider Trading at the Galleon Group’. The insider trading at Galleonrepresents the biggest case of fraud and conspiracy that lead to the conviction of its co-founder, Rajaratnam along-with requiring him to pay heavy penalty and fines. The GalleonGroup was privately owned hedge fund firm involved in providing services to the investorsthrough managing their portfolio’s consisting of stocks, bonds and other financialinstruments. However, the firm was found guilty of involved in insider trading activities forimproving its profitability position through gaining insider information about the companystocks. As a result, Rajaratnam was founded guilty on 14 counts in the year 2011 along withthe executives of big companies such as Intel, McKinsey, IBM and Goldman Sachs by theSEC (Securities Exchange Commission) and the U.S federal law. In this context, the presentreport demonstrates a critical evaluation if the case through examining the informationgathering techniques used by Rajaratnam’s on Wall Street and implications of sharingconfidential materialistic information by insiders to outside parties. Also, it evaluates thenecessity of deterring the fund managers involved in insider trading for securing theconfidential information of the business entities. c. Section 2:Evaluating whether the information-gathering techniques used by Rajaratnam’s common onWall Street and the ways for reducing such practicesAs analyzed from the case study, the Galleon Group collapsed due to insider tradingactivities used by its co-founder Mr. Rajaratnam’s. The insider trading activities refer toaccessing the non-public information from the insider groups of a business entity and using itillegally for making profits through trading its stocks and securities. The Galleon Group isinvolved in managing the investor’s funds and providing them superior returns. However, thecollapse of the entity in the year 2011 due to insider trading activities and thus violating theaccounting principles of protecting the investors interest by gaining an undue advantage inthe marketplace by trading on non-public information. On the basis of this case, it can be saidthat information-gathering techniques used by Rajaratnam’s such as using illegally thecontacts made in the financial markets for achieving the non-public information for personalprofit motives (Ferrell, Fraedrich and Ferrell, 2016). These activities of exchanging the non-public information is common on the Wall Street as financial analysts and top executives of3
the companies sometimes involve themselves in illegal conduct for monetary benefits. Thetechnique of insider trading will be a continuous problem as the people involved will findmore innovative ways of accessing the confidential information about the stocks andsecurities (Lyon and Plessis, 2005). As evident from the case study, Rajaratnam’s posses sound knowledge of thefinancial markets as he has worked previously as a financial analyst and also has doneextensive research on stock markets. The extensive contacts made by Rajaratnam’s with thefinancial analysts and top executives of the company have enabled him to conduct insidertrading activities successfully with realizing of heavy profits. As such, it can be said thatinvestors, analysts, fund manager and top executives who possess sound knowledge of stockmarkets can utilize such information for illegal trading of stocks (Ferrell, Fraedrich andFerrell, 2016). In this context, it is required that regulators, investors and executives can only restrictthe occurrence of these activities by monitoring the company’s accounting operationscontinuously. In this context, regulators are required to have a close watch on the activities ofthe stock market and any unusual stock market occurrence should be analyzed in detail. Theregulators are recommended to incorporate the use of powerful data analysis tools foridentifying any fraudulent activities occurring on the stock market (Ferrell, Fraedrich andFerrell, 2016). The investors should evaluate the past, present and estimated futureprofitability position of a company before making decisions regarding its investment strategyfor a particular stock. This would help the investors to assess in advance any suspiciousfinancial activities prevalent in a company’s accounts and thus securing the hard-earnedmoney of investors (Bainbridge, 2013). The investors are recommended to adopt long-term investment plan as short-terminvestments are risky due to their higher volatility. As such, these investments become moreprone to fraudulent activities and therefore lack reliability and confidentiality. The investorsshould devise a long-term strategy before investing in a business entity for securing theirinvestments. The executives need to have organizational commitment and this can beimbibed in them by providing them job satisfaction. Also, the company’s board of directorsshould insist on employees to sign a non-disclosure agreement that provides guiltiness tothem about the punishment likely to be imposed n them for leaking the confidential4
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