U.S. News and World Report editor Mort Zuckerman says the Raj Rajaratnam conviction will change the way the financial world works, perhaps even to the extent of laying down new laws for Congress.
The huge advantage big banks and big hedge funds enjoy is fueled by their relationships in the corporate world, says Zuckerman.
“They can hire expert-network companies, which connect large investors with outside experts, and pay them handsome fees for non-public information on stocks whose share prices can quickly turn on titbits about forthcoming products or financial performance,” Zuckerman writes in the Financial Times.
Because the supply chain is now predominantly global, dissemination of such material information is beyond the control of U.S. regulators, Zuckerman notes, adding that one expert-network company employed a group in Asia to feed insider information to clients.
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"Every reputable company and advisory service, including investment banks, must be horrified by these revelations and will seek to make sure it does not happen to them by revising the rules for their director and compliance standards to avoid the breakdowns revealed in this trial," he said.
"The cracks in governance are big and intolerable. We may even see a revival of a 2010 proposal to lay down trading rules for non-public information collected by congressmen."
Reuters reports that the secretly recorded phone conversations are the hallmark of the broad Galleon case that ensnared 26 defendants, 21 of whom have pleaded guilty.
It was the first time wiretaps had been used so extensively in a white-collar case.
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