Comparative Business Ethics & Social Responsibility Report: Case Study

This report delves into the realm of comparative business ethics and social responsibility, using the Rajaratnam insider trading case as a focal point. The analysis examines how the investigation and subsequent conviction of Rajaratnam and others serve as a deterrent to financial misconduct. The report explores the impact of heavy penalties, the involvement of key players in investigations, the use of wire transfers and offshore accounts, and the scrutiny of personal networks. It also highlights the significance of investigating even high-profile individuals like Rajat Gupta and the use of digital information and electronic surveillance in uncovering financial crimes. The conclusion emphasizes the importance of discouraging insider trading and punishing perpetrators to protect market integrity and investor confidence. The report stresses the need for financial ethics education to prevent such unethical practices.

Running head: COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY 1
Comparative business ethics & social Responsibility
Institution
Student
Date

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
2
Comparative business ethics & social Responsibility
The secret investigation and subsequent conviction of Rajaratnam and other people in the case
study presented will prevent other financial managers and other investors from sharing nonpublic
information or using such information for personal enrichment. The reasons for this stand are
explained in the following section of this report.
It set a precedent for inside trading heavy penalties
The sentence that Mr. Rajaratnam of eleven years and the order to pay damages to all those
affected by the malpractice amounting to over US Dollars 158 million. Research has shown that
heavy penalties deter other potential criminals from engaging in the criminal acts (Larry, 2005).
Many people who engage in inside trading love making faster money and in any case they try to
avoid instances that can make them lose their money. Rajaratnam hired the best attorneys in the
States to avoid losing and if only he had an example like the one he set, he would have avoided
the crime. He was even willing to collude with investigators and corrupt the Intel corrected on
him because he knew the penalty awaiting him if he is found guilty. Fear will prevent the other
people willing to participate in the crime and thus nonpublic information will not be disclosed
for personal gains. Heavy penalty set is a motivation enough of making financial managers and
investors shy off from these activities (Brody & Ackerman, 2014).
Involving Key Players in the Investigation
When the Securities Exchange Commission (SEC) decided to bring in people who were
colluding with Rajaratnam in insider trading, a warning was given to all the perpetrators that
betrayal is possible. Mr. Khan accepted to collaborate with the government in ensuring the

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
3
conviction of the said individual. He was even willing to testify against Rajaratnam with the
hopes of facing a lower charge in his own conviction. It was the best move that made it possible
to more information to be corrected regarding the activities and the communication of the
offended. Text messenger and videotapes were corrected with the permission of Mr. Khan. The
whole scenario will act as a warning to potential fraudsters that the authorities can use any means
possible to acquire the evidence necessary to convict someone in a court of law (Gross, 2007).
Secret investigation that includes key players in the crime will best stop the malpractice
Connecting investigations with wire transfers and offshore accounts
During the investigation of Rajaratnam, the SEC used information of other suspects such as wire
transfers in offshore banks or incorporating their investments with shell companies and the
subsequent failure to report such gains while filing the tax returns. A good example is that of Mr.
Anil Kumar who gained from insider trading and hid the money in offshore accounts. In addition
to secretly investigating the accused phone conversations, following keenly on the investment
patterns and how money acquired is utilized helps to raise red flags of insider trading. The act is
important in proving beyond doubt that the suspect actually has got something to hide. Such a
move and a way of the investigation will make potential criminals from committing the crime.
They will be worried that the proceeds from their activities will be traced back and as a result,
their activities will be exposed (Levine, 2014). Connecting the accounts and financial assets of a
suspected person with the activities investigated will reveal facts that will eventually form part of
the evidence. Such acts will always deter fraudsters from engaging in the activities.
Investigating one`s network of friends and business partners

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
4
The prosecution of Galleon involved presenting evidence from the network of friends of the
chief financial investor analyst of the company. The result was that the said person did not
maintain the friendship for reasons of professional engagement but for facilitation of insider
trading. Investigating the reasons for these networks will in most cases reveal undisputable
evidence that fraud was taking place. Mr. Khan, for example, was found having sent a text
message to Rajaratnam that he should wait for directions. As a result of investigating the
friendship, the SEC lawyers became suspicious of the investment decisions of the company and
its chief executive officer. It is thus clear that following these networks will be an important lead
to catching the fraudsters. The result of this act is that those who could plan to maintain a
friendship with other professionals with the aim of getting the nonpublic information for
personal enrichment will be cautious of such a move and what is more they will avoid the act. As
it is echoed by Richard in a journal article that friendship and networks form an important lead in
investigating insider trading (Richard, 2001).
Investigating even the powerful statesmen
Mr. Rajat Gupta, a business alley of Rajaratnam and a respected businessman in the states who
was the first Indian Born Chief Executive officer of a multinational corporation and considered a
man of integrity was found guilty of insider trading and was sentenced two years in prison and a
fine of 24.9 million US Dollars (Savage, 2007). The main lead to his conviction being a phone
call he made to Rajaratnam on September 25th, 2005 concerning the Berkshire Hathaway's
purchase of Golden Sachs stock. The call made it possible for Galleon to make Millions of swift
profits. Investigating Gupta and his conviction sent a warning to all potential fraudsters that no
matter their profile or status in the society, SEC will investigate them and if found guilty they
will have to face the full force of law. The case was a symbolic victory to federal investigators

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
5
and SEC at the same time sending a message to those in the financial sector that no wrongdoers
no matter how powerful they are. As stated by Thomas Newkirk in the International Symposium
on financial crime, punishing wrongdoer has no limits or status (Newkirk, 2000).
USE OF DIGITAL INFORMATION AND ELECTRONIC SURVEILLANCE
The use of wire tapes in the Gallons case set a precedent that such ways of acquiring information
could be used even in financial crimes in addition to the historical use of terrorism, drugs and
organized crimes. That was a milestone in fighting the issue of insider trading bearing in mind
the perpetrators use electronic ways of communication such as e-mails, text messengers, phone
calls and other digital information. The result is that the pieces of evidence corrected using this
method is admissible in a court of law and thus fraudsters will have no hiding place as the case
used to be (Brooks, 2012). The SEC and other financial crime investigators can use these
methods and this will pose a challenge to those who share nonpublic information with the aim of
enriching themselves as they will have no means of sharing it. This will eventually lower the
cases reported on inside trading and the securities markets will have fair deals. In many cases,
the offenders had hidden in the shield of constitutional rights of personal privacy but with this
precedent, the investigators can use the evidence even without a court order validating it
(Ventoruzzo, 2012). Acquisition of such information will scare off those preparing to engage in
the crime and eventually insider trading will vanish.
Conclusion
In conclusion, the evil of insider trading has left many security markets all over the world
vulnerable to unfair competition and as a result, many genuine investors lose their funds. It lead
to the collapse of Galleon and other companies that were trading with it. Rajaratnam is just but

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
6
an example of many other businessmen who are engaging in this unethical practice. It is a breach
of the confidentiality that professionals are expected to uphold especially to the shareholders.
The practice hurts the economy with millions of money being lost in the securities market among
many other evils. It is for this reason that the practice should be discouraged and perpetrators
punished as per the regulations such as the Securities Exchange Act of 1934 and other judicial
precedents available in the US legal system. People should also be taught financial ethics to
show them the evils associated with this form of fraud and why they should avoid it.

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
7
References
Blodget, H. (2011). Outrageous Insider Trading. Business Insider, 44-67.
Brody, M. &. (2014). Prosecutors Subpoena Congress in Insider Trading. The Market Watch, 23-
45.
Brooks, P. (2012). Gulf Between US and UK Insider Trading. Financial Times, 17-19.
Christopher, C. (2009). Insider Trading Problem. The Star, 12-29.
Findlaw. (2012). Insider Trading Cases. The Findlaw, 34-45.
Gross, D. (2007, May 29th). Insider Trading Congregational Style. The Washington Post
Company, pp. 13-22.
Larry, H. (2005). Insider Trading. Chicago: Oxford University Press.
Levine, M. (2014). SEC Insider Trading Investigation. Deal breaker, 67-98.
Newkirk, T. (2000). Insider Trading. 16th International Symposium on EconomicCrimes (pp. 13-
18). Cambridge: Jesus College.
Richard, T. (2001). When is it Legal to Trade on Insider Training Information. Sloan
Management Journal, 89-92.
Savage, D. (2007). Supreme Court Affirms Broad reach of Insider Trading Laws. Los Angles
Times, 95-108.

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
8
Ventoruzzo, M. (2012, June 19TH). Insider Trading in the US and Europe. Havard Law School,
pp. 23-45.