As Wall Street digests a major insider trading conviction, and federal promises of more prosecutions to come, for now the general financial planning community appears to be immune from client queries on the scandal. This is a departure from 2008 when financial companies fielded a barrage of calls following the revelation of Bernard Madoff”™s Ponzi scheme.
While those schemes continue to get headlines ”“ only this month a former Wethersfield resident named Michael Goldberg was sentenced to 10 years in prison for running a $100 million scam ”“ the insider trading verdict against Galleon Group”™s Raj Rajaratnam promises major changes in how the federal government investigates the financial industry, even as the coming Dodd-Frank financial reform act already has companies scrambling to improve their compliance processes.
Following a string of plea deals by financiers, including multiple people who live or worked in Fairfield County, a Manhattan jury found Rajaratnam guilty on 14 counts stemming from the largest insider trading ring in U.S. history. Jurors deliberated 11 days following the trial, in which Rajaratnam declined to take the stand in his own defense. He plans to appeal the verdict, and was placed in home detention until his sentencing in late July ”“ he lists dual residences in New York City and Greenwich.
According to Richard Slavin, a managing partner in the Westport law office of Cohen & Wolf, the case could help prosecutors in their court requests to use wiretaps to eavesdrop on white-collar crime suspects.
Manhattan”™s chief federal prosecutor reportedly is pursuing multiple other large insider-trading probes, including one involving so called expert-network firms, in which some consultants are being investigated on whether they have insider tips to the hedge funds that hire them.
“If I was running a hedge fund, I would do some more training for all of my people,” Slavin said. “From where we are sitting right now, everyone is waiting to see what happens next.”
That was much the case after Madoff”™s Ponzi scheme became public in 2008, with financial companies already reeling from the collapse of the markets spawned by the bankruptcy filing of Lehman Bros.
At the time, the CEO of RDM Financial Inc. felt compelled to issue a December letter to investors saying his Westport-based company had no exposure to Madoff”™s financial house of cards ”“ or to hedge funds either ”“ and that all accounts were insured against fraud for up to $500,000 through the Securities Investor Protection Corp.
In an interview this month, RDM CEO Ron Weiner said the Galleon Group verdicts have not prompted any new questions from the company”™s investors ”“ but added that in itself is a fair question, given Fairfield County”™s high concentration of sophisticated investors with a complicated portfolio of products and service providers. RDM is regularly audited, Weiner added, including a rigorous overhaul of all its internal controls only last year.
“We already spend tons of money on outside audits,” Weiner said. “Quite frankly, knowing what they do with us makes the fact that Madoff was able to do what he did all these years seem almost impossible.”
Slavin said financial companies could see some kind of a ripple effect as the extent of other prosecutions comes to light.
“A retail customer reads this stuff in the newspaper and thinks, ”˜Ah, it”™s a rigged game ”“ how am I ever going to be able to make money doing this?”™ Well, that”™s why you read these prosecutions in the paper ”¦ so people know it”™s not a rigged game.”
