David Siegal in The New York Observer: Raj-podge Trading Scheme No Mosaic Method

05/11/2011

The jury's verdict is in, and it has found Raj Rajaratnam guilty on all 14 counts. Preet Bharara is gloating and lead prosecutor Jonathan Streeter has won a formidable battle in his biggest case yet (although the defense will certainly appeal.)

But what, one must wonder, does the verdict mean for the future of the "mosaic theory" defense? This, after all, was what Rajaratnam's defense team argued that the hedge fund manager was doing: examining the nuances of already public information and then making trades based on his research. But rather than rendering a verdict on the research method, attorneys say the jury's decision only emphasizes that what Rajaratnam did was not the mosaic method.

"Once you're in possession of material non-public information the mosaic theory no longer applies," said David Siegal, a former federal prosecutor who is now a partner in the white collar criminal defense practice group at Haynes and Boone. "In his case there was evidence about impending mergers, top-line financial information being exchanged days before earnings reports, and advance notice of Warren Buffett's multi-billion dollar deal to rescue Goldman Sachs."

Rajaratnam appeared to have crossed the line, in other words, from collecting cobwebs of rumors to illegal mining of weighty corporate secrets.

Excerpted from The New York Observer, May 11, 2011. To read the full article click here.

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