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Dethroning Raj gives feds an overdue win

May 11, 2011: 11:18 AM ET

Ring the bells! The  government actually managed to convict someone of ripping off those of us who, willingly or otherwise, entrust our financial futures to the markets.

A federal jury on Wednesday found hedge fund manager Raj Rajaratnam guilty of all 14 counts of conspiracy and fraud, after he scored $64 million in a long-running insider trading scam.

Rajaratnam, 53, now faces 20 years in prison. Here's hoping they throw away the key.

And good riddance

Because the decision hands the government a high-profile victory in what has been, let's face it, a rarely joined, often humiliating battle with the Wall Street creeps who nearly blew up the world and more than lived to tell the tale.

Since the Dick Fulds and Joseph Cassanos of the world brought the financial world to the edge of the abyss in 2008, the feds had managed to bring just one high-profile case: a fraud-and-insider prosecution of two Bear Stearns hedge fund managers who were, let's say, less than forthcoming with their investors as they drove their subprime funds into the ground.

The government lost that one in ignominious fashion, with the jury returning an innocent verdict in all of two days. That setback, and the government's failure to even bring cases against a whole cast of other obvious miscreants, seems to have emboldened other wrongdoers, as if they needed any prompting.

When Rajaratnam was indicted in 2009, he defiantly declared his innocence. His Galleon hedge fund, with $7 billion in funds under management, was considered the smart money in tech and health care investing.

We now know why, of course. Rajaratnam and his confederates were using insider information to bet on sure things -- buying stocks that would rise after news they gleaned from boardrooms and other nonpublic sources, selling those that were about to take a big hit.

Rajaratnam's defense team argued, absurdly, that the calls Rajaratnam took from a board member at Goldman Sachs (GS) and Procter & Gamble (PG) shortly after meetings ended there weren't a sign of insider trading. No, they claimed, Rajaratnam et al. were simply assembling what you might call a melange -- perhaps a pastiche? -- of public data that anyone motivated enough could put together.

In contrast to the Bear Stearns case, the jury this time found the good sense to see through this.

"In a case where there are so many different counts, where those counts were so hotly contested, and where there was such a long trial, to see him found guilty on all 14 counts shows that the jury was totally convinced by the government's arguments," says Jonathan New, a white collar defense attorney at Baker Hostetler who worked as a prosecutor.

So yes, Dick and Angelo and all those cool guys are still on the loose, and this case is not going to put any of them where they belong. But Wednesday's verdict is good news for those of us whose retirements depend in part on preventing securities markets from getting milked by greedy, nihilistic jerks like Rajaratnam. Let's hope his conviction isn't the end of that story.

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About This Author
Katie Benner
Katie Benner
Writer, Fortune

Katie Benner joined Fortune in October 2006. As a writer for the magazine and the website, she focuses on Wall Street and the economy. Prior to joining Fortune, Benner worked at TheStreet.com, CNNMoney, and as a freelancer in Beijing for China International Business, the South China Morning Post, and as a columnist for Beijing Review. She has a B.A. in English from Bowdoin College.

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