Thin Line Separates Insider Trading and Research

The most precious commodity on Wall Street is information, and savvy players will do almost anything for it. Some investment funds canvass doctors to scout out blockbuster drugs. Others pay meteorologists to forecast weather that will affect the price of oil and wheat. And still others hire corporate executives to provide an inside view of companies and industries.

But now some of Wall Street’s biggest hedge funds are watching nervously as prosecutors say that Raj Rajaratnam, a billionaire fund manager, went too far in this relentless quest for a trading edge. On Friday, federal prosecutors charged Mr. Rajaratnam and five other people with insider trading — using information that they received illegally in an effort to make riskless profits on stocks. Prosecutors have said they are still investigating the case, and some defense lawyers who are not representing people already facing charges said Monday that they could not comment on the record because they may be retained soon.

Insider trading, however, can be difficult to prove, said Leslie R. Caldwell, the co-chief of the white-collar crime division at the law firm Morgan, Lewis & Bockius. The line between buying legitimate research, trading rumors and gossip, and illegally paying for market-moving information can be complicated. Read more…

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