Comparative Business Ethics and Social Responsibility in Finance

This report delves into the realm of business ethics and social responsibility, with a particular focus on the issue of insider trading within the context of financial markets, specifically referencing Wall Street. The report analyzes the ethical breaches exemplified by cases like that of Rajaratnam and the Galleon Group, highlighting the prevalence of information gathering techniques, even if they are bordering on illegal. It explores the motivations behind unethical behavior, such as greed and the belief in avoiding legal scrutiny, while also discussing the importance of character and integrity, drawing upon insights from figures like David Swensen and Warren Buffet. The report also offers insights on red flags for investors and regulators to watch out for, emphasizing the need for diligence and the potential consequences of unethical practices. The report concludes by advocating for a stronger emphasis on ethics education and the maintenance of reputation to discourage insider trading and promote ethical behavior in the financial sector.

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Comparative business ethics and Social Responsibility
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Information gathering techniques resembling those of Rajaratnam are still practiced on
Wall Street. Any business goal or intention is to make money. As much as insider trading is
unlawful, people tend to forget that and solely focus on its advantage when it comes to
generating quick money (Akwera, 2010, p. 178-179). However, no one wants to be prosecuted
for insider trading, so people have become more careful and look for ways to disguise it so as to
avoid the penalties associated with the act.
News about charges against Rajaratnam of Galleon Group concerning insider trading
generated jokes on Wall Street. The vulnerable finance professionals are electricians; due to their
common task of finding out if phones or landlines are being tracked by the FBI. Brooklyn Bridge
area was where traditional insider trading used to take place. Ivan Boesky, a financial executive,
was convicted in the 1980s for exchanging information that was not available to the public in
person.
As the saying goes, there is some truth that lurks in rumors or jokes. A lot of rumors have
been doing rounds about how people benefit from Wall Street through insider trading evident in
their massive accumulation of wealth (Granhag, Vrij & Meissner, 2014, p. 815-816). Barton
Biggs, a strategist veteran investment, narrates the operations undertaken by a hedge fund in his
Hedge Hogging that was published in 2006. In a particular chapter known as “Divine
Intervention or Inside Information?” he narrates a certain stockbroker’s story, Judson Thomas,
on how he has the insight of knowing tomorrow’s market trends today hence becoming a
celebrity.
Some media articles argued that prosecutors will have it hard proving Rajaratnam and the
others with similar charges guilty. They argue that it is hard to differentiate between information

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gathering that is legal and illegal data sourcing that is not to be disclosed. However, ethics was
breached since Rajaratnam used information that was not available to the public in prospective
earnings.
Majority of MBA programs insist that students take an ethics course, where cases of
illegal insider trading are taught in detail. Likewise, all Chartered Financial Analysts, including
numerous who are working for Wall Street, are expected to pass an exam on ethics (Fuld, 1995,
p.10). It is expected that majority of the students did not take their ethics course with the
seriousness required. However, the tutors played their role of informing them of the dos and
don’ts of inside information and the expected consequences in case one breached the law.
Moreover, Rajaratnam’s funds that are registered with the Securities and Exchange Commission
(SEO) are expected to possess codes of conduct where employees swear to avoid trading on
inside information.
Success and character
It is hard to fathom why talented and smart people who can easily acquire wealth through
ethical means, engage in unlawful acts like illegal insider trading at times for relatively small
gains. It could be greed for money or the fact that they assume that they are too smart to be
caught (Bull by the horn, 2013, p. 50). The fact that they are able to hire renowned lawyers and
regulators makes those involved in trading information illegally believe that they can avoid legal
scrutiny.
Managers also assume that even if their companies attract investigations from the FBI
and SEC, an individual analyst would be found to have acted on their own accord without

COMPARATIVE BUSINESS ETHICS AND SOCIAL RESPONSIBILITY 4
involving the manager. After all, individuals want to benefit from offering consulting services
without having to share the money out.
David Swensen, in his message through the Financial Times (October 10, 2009), says that
character and quality of a person are most important. Swensen, who is running Yale’s $16 billion
endowments, looks at individual performance record when hiring fund managers. Referring to
Wall Street, is it easy to sell out one’s character using their past? Swensen joked about
interviewing one’s high school teacher before employing them.
Warren Buffet, who is the CEO of Berkshire and a very successful investor, talks about
the choice of character and how it can make one successful or fail, during his Wharton speech in
1999. He further said that forming acceptable habits includes developing integrity and
trustworthiness (Bar-Isaac, Caruana & Cunat, 2012, p. 162-185). People who stray from the right
habits appear on Wall Street and may shine initially, but at the end, they fall, which doesn’t have
to happen. Buffet insists that energy, integrity, and intelligence are all fundamental to success.
Investors to watch for Red Flags
It is very hard for investors to sell out the companies involved in insider trading because a
company cannot just confirm to be practicing the illegal information gathering technique. It is
however important for regulators to watch out for any suspicious dealings within investor
companies like making the abnormally huge amount of money and sudden changes regarding
buying or selling stock. Moreover, employees should be thoroughly warned of the dire
consequences associated with insider trading.
Rajaratnam’s case shows some red flags, especially that of 2005 where his company paid
$800,000 as fine for improper profit acquisition in shorting stocks, to SEC. The fine raises

COMPARATIVE BUSINESS ETHICS AND SOCIAL RESPONSIBILITY 5
eyebrows on the diligence of investors who invested billions in Galleon, despite getting the SEC
incident was exposed (Rajaratnam, 2016, p. 183-210). Investors and regulators may not be able
to 100% tell the credibility of a company, but it is vital to always be on the lookout for red flags.
Any improper activity or abnormal investment gains should get investors running. When
investors avoid companies that do not look or sound credible, illegal insider trading will reduce
because financial analysts require as many investors as they can get, to grow.
News reports indicate that more people are likely to be charged with unlawful insider
trading. Prosecutors have strived for as much prison sentence for lawbreakers as possible. The
need to maintain one’s reputation and the thought of spending years in jail should discourage
people from chasing for quick money through illegal means such as insider trading (Tao, Zhou,
Lau & Li, 2013, p.e4). Maybe then, tourists may get space under Brooklyn Bridge from Wall
Street to Chinatown in New York.

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References List
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of Presenting Data, Facts, and Figures. Information Design Journal, 18(2), pp.178-179.
Bar-Isaac, H., Caruana, G., and Cuñat, V. (2012). Information Gathering Externalities for a
Multi-Attribute Good. The Journal of Industrial Economics, 60(1), pp.162-185.
Bull by the horns: fighting to save Main Street from Wall Street, and Wall Street from itself.
(2013). Choice Reviews Online, 50(07), pp.50-3952-50-3952.
Fuld, L. (1995). The new competitor intelligence. New York: J. Wiley.
Granhag, P., Vrij, A. and Meissner, C. (2014). Information Gathering in Law Enforcement and
Intelligence Settings: Advancing Theory and Practice. Applied Cognitive Psychology,
28(6), pp.815-816.
Rajaratnam, B., Rajaratnam, K. and Rajaratnam, M. (2016). A Theoretical Model for the Term
Structure of Corporate Credit based on Competitive Advantage. European Financial
Management, 23(2), pp.183-210.
Rajaratnam, M., Rajaratnam, B. and Rajaratnam, K. (2012). Mauling Mr. Market: Valuing
Equity Capital of Businesses by Long-Term Value-Investors. SSRN Electronic Journal.
Tao, X., Zhou, X., Lau, C. and Li, Y. (2013). Personalised Information Gathering and
Recommender Systems: Techniques and Trends. ICST Transactions on Scalable
Information Systems, 13(1), p.e4.