Galleon’s Raj Rajaratnam was charged with an insider trading scandal last Friday. It seems that the media has detailed some of the trades the SEC has been tracking over the years. Given recent events with Madoff and other “runaway money managers”, it’s easy to point at the entire industry and claim everyone is crooked.
Rajaratnam works in a very competitive industry where every basis point of outperformance can lead to more money under management ( which leads to higher pay/bonuses). When you fail to deliver returns, investors typically flee after one bad quarter even if you’ve served them well for the past 5,10 years. The pressure of a hedge fund manager is tremendous due to the amount of stress and potential rewards from outperformance in a volatile year.
This industry is not so different from baseball, swimming, running, cycling or any sport where the slight difference results in tens and hundreds of millions of dollars.
It’s difficult not to be lured into the trap of easy money but it comes with consquences. When a hedge fund is consistently good, it should raise a few red flags in the back of your mind.
Raj Rajaratnam spent over a decade to build out his hedge fund. By committing this fraudelent act, he harmed his employees, investors, and the entire industry’s reputation for a quoted 20 million. If you think about it, it is a pittance compared to his net worth (quoted in the hundreds of millions).
To risk everything you’ve accomplished thus far for chump change is incomprehensible. The price of ruining your reputation is too high to pay. It’s not something you can buy (although many people try).Your reputation is the only thing you come into this world with, it’s also the only thing you leave this world with.
CNN Money link detailing the trades:
http://money.cnn.com/2009/10/19/markets/insider_trading_arrests.fortune/index.htm?postversion=2009101912
Tags: Galleon, Insider Trading
