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A Times Editorial

Paying the price for financial fraud

It has become something of a rallying cry this election season and inside the Occupy Wall Street movement that not enough bankers and financiers at the helm of their mismanaged companies during the country's economic meltdown have been held accountable in a court of law. That would probably come as a surprise to billionaire hedge fund trader Raj Rajaratnam, who is facing an 11-year federal prison sentence for insider trading after an aggressive two-year government investigation and prosecution.

In addition to his prison time, Rajaratnam must also forfeit $53.8 million in ill-gotten gains as well as pay a $10 million fine for his role in a $72 million insider trading scheme. While some may rightly criticize the government for not doing more to prosecute financial industry scofflaws, many of those who have abused their fiduciary responsibilities are being tracked down and hauled before juries.

The investigation against Rajaratnam also netted 54 co-defendants, and 50 have pleaded guilty or been convicted at trial. That's a fairly impressive prosecution track record, and it should send a message to other Wall Street traders that the government will rigorously pursue violations of the public trust.

Rajaratnam is not alone when it comes to financial services corruption. The 150-year sentence handed down to Ponzi scheme kingpin Bernie Madoff may be the most high-profile prosecution. But there have been many other executives charged with and convicted of various conspiracy and securities fraud violations, including former Tyco International CEO Dennis Kozlowski (8 ⅓ to 25 years), Bernard Ebbers, former head of WorldCom (25 years), Lee Farkas, former chairman of Taylor, Bean & Whitaker (30 years) and Rajaratnam's former Galleon Group associate Zvi Goffer (10 years). These are hardly slaps on the wrist.

Investigating and prosecuting multimillion-dollar securities fraud cases is a complex and time-consuming effort, which may partly explain why even more bankers and traders have yet to be read their Miranda rights. But the cases of the arrogant Rajaratnam and his fellow executives who are trading in their pinstripe suits for federal prison clothes demonstrate that not everyone gets away with bilking investors.

It is possible Rajaratnam may serve his sentence at the same North Carolina federal prison where Bernie Madoff is incarcerated. The two men should have plenty of time to talk about their financial acumen — and prosecutors should continue to pursue those Wall Street executives who skirted the law and duped investors in their quest for riches.

Paying the price for financial fraud 10/17/11 [Last modified: Monday, October 17, 2011 5:57pm]
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