Galleon case exposes a world of corporate leaks

NEW YORK: 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, US 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 centre 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. 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 this raises questions on whether rules to control such behaviour have any teeth.

���Selective release of information is a violation of Reg FD. Unfortunately, it happens every day,���said Mark Molumphy, a plaintiffs attorney at Cotchett Pitre & McCarthy. ���The competition that now exists among hedge funds to top each other has led to this culture of skirting the law 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. However, whether Reg FD will be used as a prosecution tool in the Galleon case is up for debate, experts said.