Insider trading scandal, a rat is better off than the wolves

Normally, the streets are mean. They say that nothing good comes of being a rat—someone who tips off the competition or regulators of illicit conduct. But on Wall Street the pan gets fried in different ways; a rat is better off.

Insider trading witness, Anil Kumar, was quoted as an ‘extraordinary cooperator’ with the authorities who made a case against one of his longtime friends, Raj Rajaratnam, and his mentor, Rajat Gupta. While they will boil in a hot prison cell, Kumar is free on bail, living in sunny California. Gupta and Rajaratnam are facing stiff punishment, potentially a combined sentence of 25 years in prison, as a precedent for those who think insider trading is still a game. Kumar, on the other hand, might only receive probation and a light prison sentence; he was a perfect rat to a trial that boiled Raj and Rajat’s rabbit. Reuters reports,“In the letter, prosecutors said Kumar was essential in helping the government improve its case and convict Rajaratnam and Gupta, ‘two of the most important securities fraud trials in history.”

On the streets, people wonder how someone who was a lifelong friend of 25 years can turn on his own and that, in turn, leads to suspicion as to the veracity of his testimony. In the white-collar world, it’s a different story, they praise his cooperation and accept his testimony if it strengthens their case.

Kumar’s cooperation undermined Rajaratnam and Gupta who coldly did not cooperate, that mentality cost them more than 10 years in prison. The San Francisco Chronicle writes, “In the world of Rajaratnam and his co-conspirators, cooperation was sadly viewed as a fundamental breach of trust to one another, and cooperators were viewed by many Galleon employees and other members of Rajaratnam’s criminal schemes as ‘ratting out’ a trusted friend,” Brodsky and Tarlowe said.”

They must not have known that one person ratting out the bunch could have undermined them completely. When making a deal with federal authorities, the sentencing can be minimized dramatically, like in the case of Anil Kumar. In other words, it’s bound to happen, to be a wolf after the slaughter does not pay off, the rat is much better off.