Raji Rajaratnam was found guilty on all fourteen counts of conspiracy and insider trading. U.S. v. Rajaratnam, Case No. 1:09-cr-0118 (S.D.N.Y.). The fact that the founder of the Galleon hedge fund was found guilty despite a valiant effort by the defense team should not be a huge surprise to anyone who followed the case or defended one of these actions.

By all accounts the Manhattan U.S. Attorney assembled more than a formidable case. During the weeks of trial the jury undoubtedly saw and heard about page after page of trading records and other documents. More importantly, the jurors heard from co-conspirators who pleaded guilty and testified against Mr. Rajaratnam. Now the credibility of witnesses who have plea bargained for a “get of jail” pass or at least a “get out of jail sooner” pass is clearly suspect. In this case however there was not just one or two but four who made deals with the government. At some point the credibility challenges by the best cross-examiner are overwhelmed.

The government’s case against Mr. Rajaratnam did not hinge on the credibility of such witnesses however. Rather, it was based on the testimony of Mr. Rajaratnam. While he never took the witness stand in his defense the jury repeatedly heard from the defendant during the government’s case. On tape after tape the jury listened to the tips and discussions about trades and sources of information. In this case the jury did not have to evaluate if the testimony of the defendant about what happened long ago was truthful. Instead, as the prosecution presented its case, the jurors listened to Mr. Rajaratnam and others talking about the trading as it was being planned and executed. As they deliberated the jurors had portions of the tapes and Mr. Rajaratnam’s conversations replayed. The verdict says that the jury found those conversations credible, believable and defining of what happened.

There can be no doubt that this was a “bet the company case” for the government. It was billed as the biggest insider trading case in years if not of all time. Much had been made of the extensive use of “blue collar” tactics such as wire taps and wired informants, employed in the investigation here on a scale not typically seen in white collar cases. The Manhattan U.S. Attorney has made it clear that he has declared war on insider trading. The government could ill-afford a loss as in the Bear Stearns case. The verdict undoubtedly means that the investigations which lead to the conviction of Mr. Rajaratnam and the related expert network inquires will continue and expand. That verdict will also likely spur the continued use of blue collar tactics.

At the same time the verdict does not reflect a redefining of insider trading law as many had suggested as the case unfolded. The government made it clear in its case that the charges here were predicated on the kind of stuff that everyone would recognize as insider trading: Tips of about to be announced earnings information, unannounced merger negotiations and similar matters. The defense went to great lengths to try and establish that the trading was the product of the mosaic theory. Stacks of research reports and other information coupled with expert testimony were presented. The government maintained its focus. The tapes appear to confirm its claims. The jury agreed.

This is not to say that law enforcement is not pushing the edges and perhaps redefining insider trading. Lost in all of the discussion of blue collar tactics and the war on insider trading are the cases the SEC has been filing which do not track the Manhattan U.S. Attorney. Actions such as SEC v. Steffes, Case No. 1:10-cv-06266 (N.D. Ill. Filed Sept. 20, 2010) and SEC v. Carroll, Case No. 3:11-cv-00165 (W.D. Ky. Filed March 17, 2011) are pushing if not redefining the edges of the mosaic theory. These cases charge insider trading based on what an employee observed as his place of employment such as a plant tour by executives guessed to be interested in an acquisition and other similar events. Not the kind of information on the tapes. No blue collar tactics. Yet these cases may well expand the definition of insider trading.

The case against Mr. Rajaratnam is perhaps the largest insider trading case in years. It is cases like Steffes and Carroll however which are poised to have a significant long term impact on the law of insider trading and ultimately the way companies handle information.