Management 340 Philosophical Research Paper
First, please research the following types of ethical theory: consequentialism, deontology,
relativism, virtue ethics, and justice. Then, choose two types of ethical theory that you would like to
study for this assignment. Next, select two philosophers’ original texts to examine in detail. Each
original text must be representative of one of your chosen types of ethical theory. Potential
philosophers’ works to consider include John Stuart Mill’s Utilitarianism, Immanuel Kant’s
Groundwork of the Metaphysics of Morals, Aristotle’s Nicomachean Ethics, and John Rawls’ A
Theory of Justice. However, you are not limited to these works and may choose any philosopher
classical or contemporary, if the philosopher’s work is representative of one of your two chosen
types of ethical theory.
The goal of this research paper is to provide clear and concise analysis and application of
your two philosophers’ ethical theories to a particular business ethics case study. In your paper, first
provide clear and concise analysis of the two types of ethical theory that you chose. Include a
detailed analysis of the relevant portions of your philosophers’ original texts. Be sure to compare
and contrast each of the types of ethical theory that you chose, using your philosophers’ works to
provide examples and illustrations. If relevant, you may also include brief information on the
historical development and contemporary trends in your chosen types of ethical theory.
Next, research both Case Study 20: Enron: Not Accounting for the Future and Case Study 13:
Insider Trading at the Galleon Group from your textbook. Choose one of the case studies to utilize
for your research paper and provide a clear and concise analysis of the business ethics issues
presented in your case study. Then, apply your two types of ethical theory to either a specific
actor/organization’s behavior or to the overall business ethics issue presented in your case study.
Again, be sure to compare and contrast how your two philosophers’ theories would apply to the
given ethical issue. Finally, provide a conclusion to the application of each of your theories to the
case study chosen. In particular, how would the business ethics issue in your case study be resolved,
if you applied each ethical theory to the ethics issue? Refer back to your thesis statement and be sure
to include your personal view as to which ethical theory and resultant resolution you would
recommend and why.
Research papers must be formatted using APA style guidelines. You are required to utilize a
minimum of five academic sources for this assignment. Two of your sources must be your chosen
philosophers’ original texts. Your textbook does not count toward your five sources, nor do nonacademic sources such as Wikipedia. A philosophy dictionary or encyclopedia, however, may count
as one academic source. Your paper must be a minimum of three pages in length and a maximum of
five pages in length. Papers are due via BBLearn on Sunday January 5th by 11:59pm. No late
papers will be accepted under any circumstances.
INTRODUCTION
The Galleon Group was a privately owned hedge fund firm that provided services and
information about investments such as stocks, bonds, and other financial instruments.
Galleon made money for itself and others by picking stocks and managing portfolios and
hedge funds for investors. At its peak, Galleon was responsible for more than $7 billion
in investor income. The company's philosophy was that it was possible to deliver supe-
rior returns to investors without employing common high-risk tactics such as leverage or
market timing. Founded in 1997, Galleon attracted employees from prestigious invest-
ment firms such as Goldman Sachs, Needham & Co., and ING Barings. Every month the
company held meetings where executives explained the status and strategy of each fund to
investors. In addition, Galleon told investors that no employee would be personally trading
in any stock or fund the investors held.
In 2009 Raj Rajaratnam, the head of Galleon, was indicted on 14 counts of securities
fraud and conspiracy, as well as sued by the Securities and Exchange Commission (SEC) for
insider trading. He and five others were accused of using nonpublic information from com-
pany insiders and consultants to make millions in personal profits. Rajaratnam's trial began
in 2011, and although he pleaded not guilty, he was convicted on all 14 counts, fined over
$158 million in civil and criminal penalties, and is currently serving an 11-year sentence.
RAJ RAJARATNAM
Rajaratnam, born in Sri Lanka to a middle-class family, received his bachelor's degree in
engineering from the University of Sussex in England. In 1983 he earned his MBA from
the University of Pennsylvania's Wharton School of Business. With a focus on the com-
puter chip industry, he meticulously developed contacts. He went to manufacturing plants,
talked to employees, and connected with executives who would later work with Galleon on
their companies' initial public offerings.
In 1985 the investment banking boutique Needham & Co. hired Rajaratnam as an ana-
lyst. The corporate culture at Needham & Co. profoundly influenced Rajaratnam and his
business philosophy. George Needham was obsessive about minimizing expenses, mak-
ing employees stay in budget hotel rooms and take midnight flights to and from meetings.
The company also urged analysts to gather as much information as possible. They were
encouraged to sift through garbage, question disgruntled employees, and even place people
in jobs in target industries. Analysts went to professional meetings, questioned academics
doing research and consulting, and set up clandestine agencies that collected information. At
Needham & Co., Rajaratnam developed an aggressive networking and note-taking research
strategy that enabled him to make accurate predictions about companies' financial situations.
Rajaratnam rose rapidly through the ranks at Needham to become president of the
company by 1991. Rajaratnam's personality also began to impact the company's culture.
Rajaratnam once told a new analyst that Needham's name was on the company, but he
was the real center of power, the one who “makes things happen.” He began to push
ethical limits when gathering information about companies. For example, concerns about
Rajaratnam's activities ended stock brokerage Paine, Webber and Co.s interest in buying
Needham. Soon, similar worries spurred complaints from some inside Needham. By 1996,
at least five Needham executives were concerned about Rajaratnam's conduct. Additionally,
many of Needham's clients complained. Rajaratnam's multiple company roles as president,
fund manager, and sometimes stock analyst were a potential conflict of interest situation;
investment banks usually separate those roles to prevent clashes between the interests of
clients and bank-run funds. In 1996, after 11 years at Needham, Rajaratnam left the com-
pany and started the Galleon Group, taking several Needham employees with him.
ACCUSATIONS OF INSIDER TRADING AT GALLEON
At Galleon, Rajaratnam developed a flamboyant leadership style. During one meeting,
Rajaratnam hired a dwarf to act as an analyst assigned to cover “small-cap” stocks. At
another meeting, when Taser International, Inc. executives came to make an investment
pitch, Rajaratnam offered $5,000 to anyone who would agree to be shocked. One trader,
Keryn Limmer, volunteered to be shocked and was rendered unconscious. Rajaratnam also
used his personal fortune to grow Galleon's business. For the 2007 Super Bowl, he threw a
lavish party for wealthy investors and executives at a $250,000-a-week mansion on a man-
made island in Biscayne Bay off the Florida coast.
At the same time, Rajaratnam contributed to various causes promoting development
in the Indian subcontinent, as well as programs benefiting lower-income South Asian
youths in the New York area. He joined the board of the Harlem Children's Zone, an edu-
cational nonprofit. He also raised nearly $7.5 million for victims of the 2004 South Asian
tsunami. For his philanthropy, he was later honored with a symphony performance at the
Lincoln Center in New York.
However, Rajaratnam was already in trouble with the government. In 2005 he paid over
$20 million to settle a federal investigation into a fake tax shelter used to hide $52 million
from taxation. Rajaratnam and his business partner then sued their lawyers, claiming they
had no idea the shelter was illegal; the pair was awarded $10 million in damages. Galleon
also paid $2 million in 2005 to settle an SEC investigation into its stock trading practices. In
addition, Intel discovered in 2001 that Roomy Khan, an Intel employee, had leaked infor-
mation about sales and production to Rajaratnam. When Khan left Intel, she took a job
with Galleon. Although Intel reported the incidents to the authorities, and Khan served six
months of house arrest after pleading guilty to wire fraud and agreeing to cooperate in the
investigation against Rajaratnam, the prosecutors could not prove that Rajaratnam actually
made trades based on the inside information. As a result, the investigation was abandoned.
Analysts live or die by the information they acquire on publicly traded firms. As such,
there is a constant struggle to gather key information that can predict changes in stock
prices, quarterly reports, and revenue. Rajaratnam had a deep network of acquaintances,
including employees at Goldman Sachs Group, Intel Corp., McKinsey & Co., and Applied
Materials, Inc. However, federal investigators were suspicious that the networking and
research at Galleon involved methods more illicit than simply maintaining a good con-
tact list. In 2007 SEC lawyers discovered a new text message from Roomy Khan advis-
ing Rajaratnam to “wait for guidance" before buying a stock. The SEC convinced Khan
to again cooperate in their investigation and allow them to record her conversations with
Rajaratnam. This single wiretap eventually led to the discovery of several insider trad-
ing rings as investigators persuaded more people to participate in the operation over the
course of two years. Table 1 describes the central players.
TABLE 1 Central Players in the Galleon Information Network
Shared Insider
Information About
Charges/Convictions
Player and
Employer
Raj Rajaratnam
Galleon
At the center of the insider trading network; pled
not guilty to 14 charges of insider trading and
fraud; convicted on all 14 counts, sentenced
to 11 years in prison, and ordered to pay over
$158 million in criminal and civil penalties
Danielle Chiesi
New Castle/
Bear Stearns
IBM, Sun
Microsystems,
and AMD
Roomy Khan
Intel, Galleon
Intel, Hilton,
Google, Kronos
AMD
Anil Kumar
McKinsey & Co.
Intel
Rajiv Goel
Intel
Rajat K. Gupta
Goldman Sachs
Goldman Sachs,
Procter & Gamble,
McKinsey
Pled guilty to charges of securities fraud; sentenced
to 30 months in prison, two years of supervised
release, and 250 hours of community service
Pled guilty to charges of securities fraud,
conspiracy to commit securities fraud, obstruction
of justice, and agreed to the government's
request to use wiretaps; sentenced to one year
in prison and ordered to forfeit $1.5 million
Pled guilty to passing inside information to
Rajaratnam in exchange for $1.75 million;
sentenced to two years of probation
Pled guilty to passing inside information;
sentenced to two years of probation
Pled not guilty to passing insider tips to
Rajaratnam; convicted and sentenced to
two years in prison and a $5 million fine
Pled guilty to giving inside information
directly to Rajaratnam over a six-year period;
sentenced to two years of probation
Pled guilty to receiving tips indirectly from
Rajaratnam; allegedly possessed evidence about
Rajaratnam's trades based on insider information;
sentenced to three years of probation
Had a reputation for having multiple sources
of inside information; allegedly paid others for
tips and gave them prepaid mobile phones to
avoid detection; pled not guilty to 14 counts of
conspiracy and securities fraud; convicted on all
14 counts and sentenced to 10 years in prison
Adam Smith
Galleon
Galleon, ATI, AMD
Michael Cardillo
Galleon
Axcan Pharma,
Procter & Gamble
Hilton, several
others
Zvi Goffer, a.k.a.
the "Octopussy"
Schottenfeld
Group, Galleon
ARREST AND TRIAL
In October 2009, Raj Rajaratnam was arrested on 14 charges of securities and wire fraud.
At the same time, the SEC filed civil insider trading charges against him. Rajaratnam was
released on a $100 million bond and immediately hired several top defense attorneys and
public relations specialists. His criminal trial began in March 2011.
The laws on insider trading are vague and often make it difficult to convict white-
collar criminals. Prosecutors had to prove Rajaratnam not only traded on information
he knew was confidential but also that the information was important enough to affect
the price of a company's stock. The government's main evidence consisted of 45 recorded
phone calls between individuals suspected of insider trading, including six witnesses who
had already pled guilty and were aiding federal investigators. In many of these phone calls,
Raj Rajaratnam discussed confidential information with investors and insiders before the
information was released to the public. In one recording, Rajaratnam told employees to
cover up evidence of insider trading. Another recording suggests Rajaratnam received a
tip from someone on Goldman Sachs board that the company's stock price was going to
decrease. That information had been presented at a confidential Goldman Sachs board
meeting only a day earlier.
The challenge for the prosecution was to prove Rajaratnam used these tips to make
illicit trades. Wiretaps of conversations between Goldman Sachs board member Rajat
Gupta and Rajaratnam, along with Rajaratnam's subsequent actions, imply this occurred.
For instance, during a board meeting on September 23, 2008, Goldman Sachs board mem-
bers discussed a $5 billion preferred stock investment in Goldman Sachs by Berkshire
Hathaway along with a public equity offering. According to the prosecution, a few minutes
after the meeting, Gupta called Rajaratnam. That same day, just before the market closed,
Galleon bought 175,000 shares in Goldman Sachs stock. The news about Berkshire Hatha-
way was publicly announced after the market closed, and the next morning the stock went
from $125.05 to $128.44. Galleon liquidated the stock and generated a profit of $900,000.
The government had several key witnesses from the insider trading rings who cooper-
ated with investigators. Before the start of Rajaratnam's trial, 19 members of the Galleon
network pled guilty to charges of insider trading, and some agreed to testify against
Rajaratnam. Anil Kumar, who pleaded guilty to providing insider information in exchange
for over $1.75 million wired to a secret offshore account, told the jury that Rajaratnam
offered to hire him as a consultant but told him that he did not want traditional industry
research. Rajaratnam also told Kumar his ideas were worth a lot of money.
The prosecution argued that Rajaratnam corrupted his friends and employees in order
to make profits for himself and Galleon. In the closing argument, Assistant U.S. Attor-
ney Reed Brodsky highlighted that Rajaratnam used his contacts to gain certainty in areas
where everyone else had none.
In order to convict Rajaratnam of insider trading, the government had to prove the
information he received could only have been acquired via inside sources. Rajaratnam's
defense maintained that some of the information Rajaratnam used was publicly available
and he was not aware other information had not been publicly disclosed. The defense
argued Galleon's public announcements, press releases, investor meetings, government fil-
ings, and additional sources showed that the information had appeared days and weeks
before Rajaratnam and others used that information. Good investment advisors are in
the business of acquiring, analyzing, and making calculated predictions so their clients'
investments increase. The defense attorneys argued that Rajaratnam's access to corporate
executives was the reason his investors hired him. The defense also claimed these same
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