Wall Street, Held Accountable
The jury in the illegal insider trading case against Raj Rajaratnam, the billionaire founder of the Galleon Group hedge fund, did what the government has largely failed to do: hold a major Wall Street figure accountable for his reckless behavior. It is an important step toward restoring trust as a prerequisite of America’s financial markets.
Mr. Rajaratnam is by far the most prominent of the 36 found guilty in an extensive crackdown led by Preet Bharara, the United States attorney for the Southern District of New York. (In all, 47 have been charged.) He was convicted on all 14 counts against him, of securities fraud and conspiracy to commit it, and he could face up to 19 1/2 years in prison and tens of millions of dollars in fines.
Insider trading is especially odious because of the kind of swindle it turns on: an insider learns something he shouldn’t through a breach of trust; basing an investment decision on the ill-gotten information, he makes a profit that is really a fraud.
It is sometimes said insider trading is a victimless crime. It is not. Was it good for Goldman Sachs’s reputation to have wiretaps played in court of a director leaking confidential information to Mr. Rajaratnam? Or for Intel, I.B.M., McKinsey or other companies to have illegal inside tips about them passed to him and his cronies?
More fundamentally, everyone affected by markets distorted by such illicit trading is a victim. The prosecution of Mr. Rajaratnam was a test of whether this kind of fraud is still offensive to an American jury.
The classic insider case involves one person tipping another in individual transactions. Mr. Rajaratnam created a network of tipping networks that seemed cynically designed to go to the edges of the law on obtaining insider information without breaking it. By providing him with a mosaic of information from many sources, his defense contended, no single source or piece of information was material to a decision to invest even though, added up, they gave him a vital edge as an investor.
The prosecution countered that by focusing on five of his many sources, relying primarily on testimony of three and wiretaps of four and their gossipy, shameless and illicit phone calls with Mr. Rajaratnam. A prosecutor summed up, “Cheating became part of his business model.”
The crimes he was tried for began in 2003 and ended in 2009, a period when markets were out of control. Had he been acquitted, Americans might have concluded that it was O.K. for an insider to play the markets as dishonestly as he did because they are basically rigged.
Thirty years ago, America’s financial markets weren’t perfect, but the exposure of market manipulation by Ivan Boesky, Michael Milken and others was shocking because their insider trading was so unexpected. The corruption felt like an anomaly in the world’s best markets.
Now our markets remain opaque and of disputed trustworthiness. It’s common to sniff illegal insider trading, but hard to prove it in court because it requires proof of intentional or knowing wrongdoing. Prosecutors must show that trades were based on material, nonpublic information knowingly used.
Mr. Rajaratnam tried to disguise those tips, but the government showed that he got illegal, material, nonpublic information by illegal means, and used it to make tens of millions in criminal gains.
Mr. Gingrich’s Intolerant History
Newt Gingrich, the former House speaker and latest entrant in the Republican presidential field, has money, experience and name recognition. His introductory video is all serenity and hope, a deceptively calm way for many voters to meet a splenetic politician with a long history of slashing divisiveness and intolerance.
He refers to himself as a historian, but apparently his personal study of history has primarily taught him about the effectiveness of demagogy. Donald Trump, fiddling with birth certificates, is an amateur compared with Mr. Gingrich at sliming the Obama administration — as well as Democrats, Muslims, blacks and gay men and lesbians.
The Democrats who won in 2008, including President Obama, are “left-wing radicals” who lead a “secular socialist machine,” he wrote in his 2010 book, “To Save America.” He accused them of producing “the greatest political corruption ever seen in modern America.” And then the inevitable historical coup de grâce: “The secular-socialist machine represents as great a threat to America as Nazi Germany or the Soviet Union once did.”
The slurs don’t stop there. He compared the Muslims who wanted to open an Islamic center in Lower Manhattan to the German Reich, saying it “would be like putting a Nazi sign next to the Holocaust Museum.” He is promoting the fringe idea that “jihadis” are intent on imposing Islamic law on every American village and farm.
Last year, he called for a federal law to stop the (nonexistent) onslaught of Sharia on American jurisprudence and accused the left of refusing to acknowledge its “mortal threat to the survival of freedom in the United States and in the world as we know it.” This nuanced grasp of world affairs was reinforced when he said that Mr. Obama displayed “Kenyan, anti-colonial behavior.”
In his world, advocates for gay rights are imposing a “gay and secular fascism” using violence and harassment, blacks have little entrepreneurial tradition, and Justice Sonia Sotomayor of the Supreme Court is a “Latina woman racist.” (He kind of took back that last slur.)
Despite all this, not to mention the ethics violation when he was speaker, Mr. Gingrich’s real liability among the conservative and fundamentalist groups that dominate the Republican primaries is his personal history of infidelity that led to two sordid divorces. (Much of which took place while he was denouncing President Bill Clinton for moral transgressions.) That may explain his endless calls to restore Judeo-Christian values.
It is sometimes difficult to know what some Republican candidates stand for, as they pander to the far right without alienating the center. It is not difficult to know what Newt Gingrich stands for, and to find it repellent.
Education Is the Last Thing on Their Minds
The for-profit education industry complained of excessive regulation last fall when the Obama administration issued new rules intended to curb abuses at profit-making colleges and trade schools. But lawsuits brought by whistle-blowers with firsthand knowledge of the industry make a strong case for why tough rules are needed.
Earlier this month, the Justice Department took the unusual step of joining a lawsuit brought by former employees of the Education Management Corporation, one of the largest for-profit college companies in the country. The employees charged that the company knowingly defrauded the government by illegally paying recruiters based on the number of students they enroll.
The court papers describe a “boiler room” atmosphere in which recruiters enrolled students who stood no chance of graduating and saddled them with debt they were unlikely to be able to pay off. They say the academic requirements laid out in Education Management’s advertisements were a sham and that the company accepted all students who completed applications and submitted 150-word essays.
The former employees also charge that students who declined to enroll because their financial aid packages were too small were sometimes pressed to convert to part-time studies. They were then given refunds but were not told that the proceeds were from loans that they were obligated to repay. The plaintiffs claim large numbers of students who enrolled in Education Management schools dropped out, probably after incurring debt from loans.
Despite these claims, and other revelations, the industry is continuing to press Congress to roll back government regulation. It is pushing particularly hard against a new rule that would cut off federal education aid to programs whose graduates end up saddled with debt that they have little hope of ever repaying.
Instead of protecting the industry, lawmakers should be looking out for constituents who have been ripped off by unscrupulous schools and for the taxpayers who foot the bills for both student aid and loan defaults.
The Decline of the ‘Lib-Dems’ in Britain
The remarkable political story in Britain is the dizzying decline of the third party, the Liberal Democrats, from kingmakers to helpless dependents on a Conservative coalition partner whose core beliefs could not be more different from their own. The result has been an economic disaster for Britain and an electoral disaster for the Liberal Democrats in this month’s local elections.
British national elections last year produced no parliamentary majority. After being wooed by the Conservative and Labour parties, the Liberal Democrats, led by the telegenic Nick Clegg, chose to form a coalition with the Conservatives, swayed by their promise of a referendum on switching to a more proportional voting system.
On most other issues, the Conservatives, led by Prime Minister David Cameron, ended up calling the shots. By far the most consequential of these has been the coalition’s radical budget slashing, which has pushed the recovering British economy back toward recession. The Liberal Democrats were also forced to backtrack on campaign promises, like holding down college tuition.
The Liberal Democrats staked their future on electoral reform. But, after watching the party contort its policies and its principles, voters concluded that the new voting system, which would produce more frequent coalitions, was not such a good idea. Liberal Democratic voters were particularly dissatisfied. The party’s local candidates were heavily defeated, and voting reform went down 2 to 1.
Conservative voters generally stuck with their party, which was delivering on its promises.
That may be the real lesson: Compromising principle is not only bad for the soul, it can be bad at the ballot box. Voters may notice.
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