Rajaratnam case is a 'wake-up call'

“It's a wake-up call, if not an extraordinary reminder that they need to make sure their employees understand the rules of insider trading and what they can and can't talk about,” said Jahan Raissi, former senior counsel in the enforcement division of the U.S. Securities and Exchange Commission. “It's also a wake-up call that federal prosecutors aren't going about this as business as usual.”

Prosecutors said Galleon founder Raj Rajaratnam reaped as much as US$18 million from investing on tips from a hedge fund, a credit rating firm and executives at International Business Machines Corp. and Intel Corp. The case may lead companies to be more guarded about the information they share with outsiders, said James Post, a professor at Boston University.

Rajaratnam, 52, and the other defendants are charged with using insider information to trade in companies such as Google Inc., Polycom Inc. and Advanced Micro Devices Inc. Last week, prosecutors arrested Rajiv Goel, who worked at Intel Capital as a director in strategic investments, and IBM executive Robert Moffat, who ran the hardware business.

In the case of Google, the most-used Internet search engine, prosecutors said a person at investor relations firm Market Street Partners provided tips about earnings.

“It's going to have an immediate chilling effect on communication between company sources and people in the investment community,” said Post, who co-wrote “Redefining the Corporation,” a study of governance and accountability. “I imagine that general counsels will immediately send out strong reminders — not to be sharing information that has not been made public.”

Edward Barbini, a spokesman for Armonk, New York-based IBM, said Monday that Moffat would be placed on temporary leave. Chuck Mulloy, a spokesman for Santa Clara, California-based Intel, said Goel is on administrative leave and the company is investigating.

Jane Penner, a spokeswoman for Mountain View, California- based Google, declined to comment. Calls to Market Street Partners' office in San Francisco weren't returned. AMD declined to comment, said Drew Prairie, a spokesman for the Sunnyvale, California-based company.

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