Galleon case portrays a world of corporate leaks

[Joanne98]

NEW YORK (Reuters) - The Galleon insider trading case reveals a world where corporate secrets are thrown around with cavalier disregard for regulations on how public company information should be disclosed.

For much of the past decade, U.S. regulators have sought to fight selective disclosure of sensitive company information, believing that such data should be disclosed to all investors in a fair and equal manner.

But the Galleon scandal suggests there may be many in American business prepared to make a mockery of these efforts.

Prosecutors have charged six people, including billionaire Galleon Group founder Raj Rajaratnam, in the biggest hedge fund-related insider trading case in history. Rajaratnam was at the center of crisscrossing illegal information networks that brought more than $20 million in profit, according to the complaints.

Among those entangled in the case are executives at several major companies, including IBM (IBM.N) and Intel Corp (INTC.O); an executive at management consulting firm McKinsey & Co; an investor relations specialist; and a former Moody's analyst.

Some of these executives are alleged to have passed on information relating to their companies' earnings or deals, potentially violating the disclosure rule known as "Reg FD."

Regulation Fair Disclosure was put in place in 2000 to prevent corporate executives from selectively disclosing information to analysts and investors.

The rules have led to an increase in regulatory filings when executives speak at conferences, ensuring that information disclosed by the executives is available publicly. But the Galleon case is raising questions about whether rules to control such behavior have any teeth.

UNFAIR DISCLOSURE

"Selective release of information is a violation of Reg FD. Unfortunately, it happens every day of the week," said Mark Molumphy, a plaintiffs attorney at Cotchett Pitre & McCarthy in Burlingame, California.

"The competition that now exists among hedge funds to top each other in earnings has led to this culture of skirting the law or getting as close as you can to get inside information and to convince a corporation to leak information."

Reg FD has been enforced by regulators only a handful of times, and normally results in quiet settlements rather than protracted lawsuits.

Most cases have involved selective disclosures to Wall Street analysts or small groups of investors attending conferences, rather than to specific hedge funds.

The Securities and Exchange Commission's first enforcement action on Reg FD came in a November 2002 settlement with Siebel Systems Inc, Raytheon Co (RTN.N) and Secure Computing Corp for telling select analysts about deals and other significant financial details without disclosing them to the public. Siebel settled the case for $250,000. Raytheon and Secure Computing were not fined but agreed to cease-and-desist orders. The companies did not admit or deny the allegations.

Few other cases have been brought since then, but there may be signs that the SEC, under Chairman Mary Schapiro, is taking a harder look at Reg FD violations. Continued..

http://www.reuters.com/article/ousivMolt/idUSTRE59T2T720091030

You mean Martha Stewart went to jail for nothing?