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One thing Manhattan’s U.S. Attorney Preet Bharara did not count on: racking up so many insider-trading convictions that one, mid-appeal, would trip him up. [Related: Nonsensical Sentences for White Collar Criminals] On the heels of an impressive 80 consecutive insider-trading wins, one of Bharara’s earlier victories is now coming back to haunt him – and played a key role in the acquittal Tuesday of accused insider trader Rengan Rajaratnam, the younger brother of Raj Rajaratnam, the billionaire co-founder of Galleon Group convicted of insider trading in 2011. Keep up with this story and more by subscribing now In a statement Tuesday, Bharara acknowledged his first-ever insider-trading defeat since ascending to the post of U.S. Attorney five years ago. [Related: Is Wall Street Pulling a Fast One?] “While we are disappointed with the verdict on the sole count that the jury was permitted to consider, we respect the jury trial system whatever the outcome and we thank the jury for their service.” Of course, there is more to this story. Aside from there just not being enough evidence to convict, according to sources familiar with the situation who spoke with Newsweek Tuesday evening, the real reason for the gradual erosion of the seven criminal charges leveled against the younger Rajaratnam—including two insider-trading charges and a charge of conspiring to commit insider-trading with his older brother—was the progress of a separate insider-trading case spearheaded by Bharara that is working its way through appeal. That case, which is being heard by the U.S. Court of Appeals for the Second Circuit, is significant because it appears likely to boost the burden of proof for prosecutors seeking to crack down on insider trading—both now and in the future—and, crucially, has caught the attention of U.S. judges who must instruct juries how to decide whether a person is guilty of insider trading, according to the sources who spoke with Newsweek. In April, during oral arguments, a three-judge panel sitting on the U.S. Court of Appeals for the Second Circuit appeared receptive to the notion that how a judge instructs a jury might be very critical to the success of an insider-trading conviction. In this case, the defendants hoping to overturn their convictions are two former hedge funds managers, Anthony Chiasson of Level Global and Todd Newman of Diamondback Capital. Because there is no specific statute that defines insider trading and, over the years, determinations have largely developed based on court interpretations, the higher court is looking at how much a trader knows about the source of his or her insider information, whether the information can be considered strictly confidential and whether an accused insider trader must have “knowledge of personal benefit”—in other words, does the trader know the tip is valuable to somebody and may have even been exchanged for something of value? Cases in the future may increasingly hinge on these questions, experts say. While the appeal court’s decision is unlikely to be known for months or more, it appears it may already be tipping the scales for traders such as Rengan Rajaratnam—and possible more traders to come, according to those close to the situation. In the case of Rajaratnam the younger, those familiar with the Rajaratnam’s acquittal said that Judge Naomi Reice Buchwald of the Federal District Court in Manhattan undoubtedly increased the burden of proof in her instructions to the jury, taking into account views of the three-judge panel to Chiasson and Newman’s pending appeal. The federal jury weighing the fate of the younger Rajaratnam—which consisted of eight women and four men – came back after only several hours of deliberation. Rajaratnam’s older brother was sentenced in a separate action to 11 years in prison. Buchwald, reached in her chambers late Tuesday by Newsweek, declined to comment on Rajaratnam’s case, but those familiar with the situation said this may mark the end of Bharara’s long winning streak with tougher insider-trading standards on the horizon. The gradual chipping away of Rajaratnam’s case actually started with the prosecution, which dropped the first four charges, followed by Buchwald two weeks ago—who threw out the most serious securities fraud charges and left one charge, conspiracy to commit insider trading, which led to the acquittal. Whether Rengan Rajaratnam, who was born in Sri Lanka, will return to his current home of Brazil is unclear. He did not answer phone calls Tuesday. His lawyer, Daniel Gitner of New York law firm Lankler Siffert & Wohl, issued a simple statement Tuesday: “Today is the day Rengan has been waiting for. We thank the jury for its attention. Rengan looks forward to moving on.” Reached in his office Tuesday night, Gitner told Newsweek Rajaratnam had nothing to add and was eager to call it a day. “I am going home now to play with my kids.” |
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(Reuters) - A few years ago, famed financial engineer Andrew Lo built a computer model that allowed one of the biggest U.S. banks to figure out which customers were most likely to fall behind on credit-card payments. More recently, the Massachusetts Institute of Technology finance professor has been laboring for another client: the U.S. government. Working with banking regulators at the Office of the Comptroller of the Currency, an arm of the Treasury Department, he's helping build quantitative tools to find potential credit risk in the banking industry, starting with the mortgage market. The efforts of Lo, a pioneer in his field, are part of an unprecedented push at the OCC to embrace quantitative analysis. The regulator is building models, hiring financial engineers - known on Wall Street as "quants" or "strats"- and questioning banks to a far greater degree than it ever has before. Keep up with this story and more by subscribing now The OCC's effort stems in part from the 2010 Dodd-Frank financial reform law, which requires the OCC and the U.S. Federal Reserve to evaluate the quantitative models that banks build and use. But the OCC is going further by building its own models from the ground up so it can check banks' results and monitor the broader financial system. The regulator hopes that by conducting its own analyses, it might prevent a repeat of the mortgage bubble, which happened in part because underwriters, investors, rating agencies, and other market participants all assumed that U.S. housing prices would not fall. "We need better models, more responsive models, that can identify risks more quickly," Lo said. "This is going to be a new age of financial innovation in quantitative models." The 150-year-old regulator hasn't always found it easy to embrace 21st century quantitative analysis. For one thing, experienced quants that can earn upwards of $500,000 on Wall Street aren't necessarily willing to work for the $80,000 to $175,000 a year the OCC is offering. For another, banks and other regulators say it's not clear that the OCC initiative to aggressively question bank models is worth the effort, particularly at a time when resources are constrained and regulators have many other, arguably more important tasks to accomplish. UNFILLED POSITIONS Michael Sullivan, who oversees the OCC's quant staff as Deputy Comptroller for Risk Analysis, said the agency has 53 quantitative economists and a support group of seven research associates and financial analysts, compared with 31 and six, respectively, at the end of 2007. Sullivan said his team recently poached a senior quant from another agency, though he declined to specify which one. He still has a few unfilled positions and is deciding whether to expand further. "We offer a unique job in that it combines direct involvement in supervision and interaction with bankers and examiners to figure out how banks operate and what kind of challenges they face in both research and policy," said Sullivan. "It's that combination that's attractive to the right person." Those types of challenges are sufficiently interesting to Lo that he is advising the OCC for free. The agency's own staff is working closely with him, and he is not privy to the bank data the OCC works with. He hopes to publish the results of the analysis. The OCC's efforts are well intentioned, but to some bank executives and even some other regulators they are also maddening. An executive at one of the largest U.S. banks told Reuters that an argument between OCC quants and the bank's own quants over a valuation model for a particular type of bond took weeks to resolve. According to the executive, there were only minor differences in the models and barely any difference in the outcomes. The bank now runs both models concurrently to appease OCC staff, even though its internal model had already been vetted by the Fed. A Treasury official who spoke to Reuters about the OCC's approach said the agency is wasting time challenging models that banks have already spent significant resources to develop. Often, this person added, OCC quants have less experience than bank quants and are privately ridiculed for second-guessing models that they do not fully understand. At the same time, banks themselves are training quants who once valued exotic derivatives to work on compliance and work closely with regulators. "Just about the only 'growth industry' in the banking world these days is regulation-based: regulatory compliance and reporting, regulatory examinations, regulatory 'optimization,'" said Leif Andersen, co-head of the quantitative group at Bank of America Corp, in a presentation he made at Aarhus University in Denmark in January. "Fortunately, for quants/strats, much new regulation is complex." REGULATORY MATTERS Ashwin Rao, who spent 14 years on Wall Street as a quant and now runs a business called Zlemma, which uses algorithms to match job-hunters and hirers in the science, technology and engineering fields, said quants used to spend 30 percent of their time on regulatory matters before the crisis and complain, but now spend 50 percent to 60 percent of their time on regulatory matters and hate it. For its part, the OCC is pleased with the program so far, and believes it will have no trouble hiring good talent. "It's one of those quiet little success stories," said Comptroller Thomas Curry in an interview with Reuters. "It's a very competitive area but one of the attractions we have for the quants that don't want to be totally academic that this is really a practical application of what they do." Lo said working for the OCC is a career move that might appeal to some of his students. The OCC often asks him for recommendations of students they might want to hire. "Part of what drives students is the fact that they can make a difference," Lo said. "They want to do good in the world." Tags:touchscreen vending, cashless vending, cloud VMS, vending retrofit, smart vending solution, vending vms |