Recently news broke about the conviction of Raj Rajaratnam, the head of Galleon Group, a large hedge-fund operation. He was convicted of Insider Trading in a major case that involved many players who were employed by major companies like McKinsey, a top global consulting company, IBM, and Intel among many others. The total damages may amount to a few hundred million dollars at the most. While this amount is not insignificant, it really pales in comparison to the damages caused by the Financial Crisis that took place in 2008/2009 and which is still lingers below the surface.

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Rajaratnam will go to jail, probably for a dozen years or so, as he should. His actions are further evidence that the “little guy” stands little chance of making money from the stock market….unless he has a plan and insight that can help level the playing field. That’s a topic for another time. My focus today is on the question of equity, responsibility and penalty.

Equity in legal terms does not refer to stocks or the stock market, but it refers to fairness and how fair penalties are in regards to the actions committed, good or bad. In the Galleon case, Rajaratnam deserves the full brunt of the law for the crimes he committed, as do his associates. Since they “ratted” on him, they will get lenient sentences while he will be trading stories with Bernie Madoff.

Looking back to the Financial Crisis I have to ask where is the equity? So far NONE of the players in the crisis, those that led the major financial institutions, even those that led the quasi governmental institutions like Fannie Mae, have seen their future threatened by the possibility of a jail term. Yet, they caused more than a trillion dollars in damages to this economy and to the portfolios of individuals by their actions and non-actions. One of the biggest offenders was the former CEO of Countrywide, Angelo Mozillo, who has been accused of all sorts of acts of negligence while he was in charge of the institution. Among the allegations was that he sold stock in Countrywide while at the same time assuring investors that everything was all right. Is that not insider trading? The feds dropped the criminal case against him a few months ago on the basis of lack of enough evidence to pursue him. Civil charges are still pending, yet he will get away with a lot more money than he will have to pay in penalties… much of which will be covered by Bank of America, which now owns Countrywide and insurance policies that were taken out for Mozzilo by Country wide.

Responsibility for the Financial Crisis should not only lie on the shoulders of consumers who made the decisions that left them in a pickle. Of course, there are no laws against bad judgment or stupidity. However, there are multiple laws that cover fraud. And, most of what happened in the years preceding the crisis was out and out fraud. Appraisers that inflated home values, loan officers that enabled unqualified borrowers to buy homes by perpetuating fraud on application forms, government employees who failed to follow up on leads against fraudsters because they were in cahoots with them – the list is endless. Yet, where are the convictions? How many perps have we seen handcuffed and on the way to the pokey? Maybe a dozen or less. The lack of the ability of the Feds to assign responsibility for an event that most of us suffered from and are still suffering from is incredible to say the least.

The penalties for the crimes in question are even more laughable. For the $50 billion or so in mortgage “issues” that major financial institutions are responsible for (that number itself seems meaningless in comparison to the actual related devastation caused), the government is seeking fines of around $20 billion. The banks have offered $5 billion. These numbers pale in comparison to the more than $3 trillion that has disappeared from the net worth of American families over the past couple of years. It is precisely penalties like this, toothless penalties, that allows the system to continue to reward corrupt practices.

The news today is about the conviction of Galleon and its founder. There’ll be a few million in fines, some prison sentences handed out and lots of chest thumping by prosecutors and politicos. Yet, the real story will never make headlines. And the bigger fish, the ones who enabled the crisis to almost destroy the financial system, well they will continue to collect bonuses and entertain the regulators and politicians on their mega yachts moored in some harbor far from the reaches of justice.

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