Today I discussed whether Wall Street will change the way it does business if Raj Rajaratnam is convicted, with Richard Roth of The Roth Law Firm, and CNBC host is Scott Cohn. Here is a transcript:
Scott Cohn: The jury in Raj Rajaratnam’s insider trading trial should begin deliberating later today. Galleon Group founder, Mr. Rajaratnam accused of making at least sixty eight million dollars by trading illegally. So we ask, if Raj is convicted will Wall Street change the way it does business? Joining us now is Richard Roth, founder of the Roth law firm and Peter Flaherty is President of the National Legal and Policy Center. Gentleman, it is good to talk to you. Mr. Roth, the cynic in me says regardless of what happens to Mr. Rajaratnam Wall Street is not going to change its ways is it?
Richard Roth: The cynic in you is right. The bottom line is that the government has put up a tremendous case. They have twenty convictions of twenty six people they have indicted. I think that Raj is going down, but Wall Street will not change its ways. It has not changed its ways since Ivan Boesky, since Milliken. I can go through a litany of people. Wall Street is Wall Street. People may do it differently. They may be a little more secure about it. But the bottom line is that Wall Street will not change Wall Street. Raj will not change Wall Street.
Scott Cohn: Yeah, Peter, that is the point here. People may be a little more discrete. Perhaps you have face to face meetings rather than actually having these phone conversations that can be so easily taped by the government.
Peter Flaherty: Well, perhaps, and don’t leave me out of the cynic’s party. I am pretty cynical too about what happens on Wall Street. But I do believe that a conviction in this case will be an important step forward. You may argue that it is a small step, but look at who we are dealing with here. We are talking about the highest levels of finance. Raj Rajaratnam was a billionaire, still is a billionaire. He headed a big hedge fund getting tips from somebody on the Board of Goldman Sachs. I think that if billionaires have to worry about eating prison food I think it will have a huge impact.
Amanda (Mandy) Drury: Surely this is endemic. I would not say that this is the norm, rather than the exception. But I would say there are a lot of people out doing this kind of thing, right Richard? I mean even if he is convicted do you think honestly that people are going to say that ooh, I had better be more careful and just keep on going.
Richard Roth: Absolutely. It is not going to be a difference at all. In fact Rajat Gupta who is the head off McKinsey who is actually on the Board of Directors of Goldman Sachs who actually fed the information to Raj is not even been indicted or convicted. He is an unindicted co-conspirator. So there are people out there who are alleged tipors who the government is not even going after. So how strong of a message is it when someone like Mr. Gupta gets a free pass, a pass over anyway.
Peter Flaherty: Because they don’t have the goods yet on Gupta. If they did, they would certainly pursue this. Let me ask you Richard, what would happen if there was no conviction in this case? Wouldn’t we open up the floodgates of all kinds of insider trading and winking and conversations over the phone? I strongly hope that there is a conviction. For one thing it will make people more aware of what they say on the phone. It is not a panacea. But you cannot say it will have no impact.
Amanda (Mandy) Drury: Would it change policies or rules and regulations? Not that we need more of those, but nonetheless do you think it is going to lead to increased calls for a chance in the system, Richard?
Richard Roth: It is not going to change policies. It is not going to have an impact. Whoever is doing it is either a thief or a fool and they are not going to change their ways. Everyone is going to say, you know Raj was stupid because there was forty tape recorded conversations, I am going to do it differently. I am telling you, for years this is an age old discussion, it is not going to change anything, unfortunately,
Peter Flaherty: It is an age old discussion. Even economists like the late Milton Friedman argued that insider trading should be legal. For the time being, it is not. And whether Richard you think it has much of an impact or not, I think that the Justice Department and the SEC have to pursue these cases. They have these nickel and dime cases where people make fifty thousand, a hundred thousand dollars and they go to prison. This is fraud at the highest levels of finance. It is critically important that these prosecutions take place. You know with 2008 financial meltdown they couldn’t prove any criminal conduct. Even though we know there was lots of criminal conduct.
Scott Cohn: Look at the whole Madoff affair gentlemen. Just because something is so obvious, it does not mean that the government or the SEC is going to be able to catch it. So Richard, just assuming that just because there were messages that were so explicit and seemingly so damming to Mr. Rajaratnam doesn’t mean anything if the government isn’t able to a catch it and b prosecute it. So maybe it does have an impact. If nothing else, it certainly gives a boost to, at least a shot in the arm if you will to not only the SEC but the government.
Richard Roth: Oh, let’s be clear. There is no question and I do agree with you there. The government should go after these people and should indict and try to convict. Twenty out of twenty six aint bad. But my point going back to your first question is I don’t think it is going to make a difference. I am not saying…
Peter Flaherty: But what should we do Richard, just abolish the Capitalist system? Abolish the stock market? What is your solution?
Richard Roth: Not at all. Not at all. The government can keep doing what it is doing because people who are indicted will be convicted and if you know there is a chance of that I think people will go about doing it in a different way.
Peter Flaherty: Well it sounds like you do think it will make a difference.
Amanda (Mandy) Drury: Peter, should insider trading be made legal?
Peter Flaherty: I don’t think so. But it is a moot point. At the time being it is illegal and it should not only apply to the printers at Business Week who were trading ahead of the magazine coming out, it also should apply to billionaires like Raj Rajaratnam.
Amanda (Mandy) Drury: Same question to you then, Richard, do you think insider trading should be made legal?
Richard Roth: No, no, no. We agree on that. Insider trading should not be made legal. It should stay the way it is. They should keep convicting. My point is I think it is wonderful that the government does what it does and stops these insider traders from doing what they are doing. I think that it is fantastic. The problem is will it impact Wall Street? I think that unfortunately, people will do what they do, not withstanding what the government does in this case.
Scott Cohn: I will get a call from each of you. Richard, how does this case end up? What does the jury come back with?
Richard Roth: I think he gets convicted. I think he gets convicted for insider trading. There is forty tape recorded conversations.
Scott Cohn: Peter?
Peter Flaherty: I think he does get convicted. There was a clear indication of criminal intent. He was paying somebody a million dollars a year into an off shore account in cash for his inside tips.
Scott Cohn: All right, we shall see. Gentlemen, thank you.
Peter Flaherty: Thank you.