Friday, April 29, 2011

Jurors in the Galleon Trial are Asked to Question the Definition of Public Information

NEW YORK, NY - MARCH 23:  Billionaire Galleon ...Image by Getty Images via @daylife“If it’s public you must acquit.”

According to NY Times DealBook, those were the words of Raj Rajaratnam’s lead defense attorney, John Dowd, in his closing arguments to the jury last week, conjuring up memories of the O.J. Simpson murder trial in 1995, where defense attorney Johnnie Cochran famously coined the phrase, “If it doesn’t fit, you must acquit.”

While it may not be completely fair to compare an insider trading trial to a murder trial, I do find some amazing similarities between the two cases:

Both defendants are powerful public figures. While Simpson made his name as a star running back on the football field, Rajartanam made his name in the finance world; Forbes listed Rajaratnam the 236th richest American, with an estimated net worth of $1.8 billion in 2009.

And both defendants seem to believe they are invincible, untouchable, and perhaps even above the law.

To quickly bring you up to speed
: Raj Rajaratnam is awaiting sentencing in his trial for insider trading while he led the Galleon Group. Many cooperating witnesses have pled guilty. Some are already serving jail sentences. Rajaratnam is considered to be the leader of what is being called the largest insider trading scheme, ever. Numerous tapes of telephone conversations between Rajaratnam and those he was allegedly soliciting information from, have been played for the jury.

The most amazing similarity between the O.J. Simpson trial and the Rajaratnam trial is the defense strategy. In each case, the defense focused on one simple argument to cast doubt. In the Simpson murder trial, it was the glove. In the Galleon case, it is the question of what is public information.

There is no doubt in my mind that what occurred in this case is exactly what the insider trading laws are intended to protect; The law dictates that the buying or selling of a security, while in possession of material, nonpublic information about the security, is illegal.

The defense did not argue that Rajaratnam didn’t do it.

There is no doubt that Rajaratnam did indeed discuss company information with people in key corporate positions, and he did indeed rely on others to bring him that information. We heard the tapes and read the transcripts of the calls. There is also no doubt that he traded (and profited) on that information. To argue that he didn’t do it would have been an exercise in futility.

Instead, defense attorneys argued that it wasn’t illegal, by focusing on the one item in the law that could be questioned:

What is public information?

In today’s world of 140-character messages, on demand, and easy sharing, when does information become public? Is a press conference or a press release required to make company results public? If someone asks a question and they receive an answer, is the information then public? Having little else to go on, the defense strategy may turn out to be nothing short of brilliant.

Regardless of the outcome of this trial, I think the question of when information becomes public will be one that we will be debating for some time. What do you think?


Carol Kilgore said...

I'm not a lawyer and I don't play one on TV, but I believe information is private - no matter how many people know it and maybe tell it to others - until it is released formally by the company. Until that point, it's rumor and hearsay. My two cents.

Liz Fichera said...

That is a great question. In this age when everything seems public, that would be a tough question to answer for any juror.

Colette said...

I suspect that is why the jury is still deliberating...