Skip to main content



Game of Funds

Raj Rajaratnam a self-made billionaire was arrested for insider trading and subsequently sentenced to 11 years in jail and millions in fines for his role in cheating the stock market armed with nonpublic information. Raj had a large network of informants in order to successfully cheat the system to his liking that has been totaled to around 20 people. The network was constructed in which Raj would have a strong edge connecting himself to his primary source of information for example Zvi Goffer. Mr. Goffer then in return would have strong edges to informants within different industries therefore making this a Strong Triadic Closure. Over the past decades hedge fund managers have seen a surge in their wealth and power. These two factors were crucial to alerting regulators to the specifics of Raj’s trading that ultimately lead to an unbalance in the network Raj was operating. Raj kept the ties throughout his network strong by showering informants with gifts and monies thus illustrating a strong edge. However, the FBI started noticing the exchange of gifts and pressured traders into wearing wire taps to cut a deal to catch Raj. This changes the dynamic of the network in which now there is a weak tie from the informants to Raj’s closest informats and to Raj himself. This violates the Strong Triadic Closure Property and creates an unbalanced network. Using this method the FBI was able to build a case against Raj and uncover the scheme he had been using for years. Interesting note: it has been proposed that if the smaller informants were not pressured to reveal the plot , Raj would have been able to continue relying on insider information for his benefit. Raj’s web of information ranged from executives of Intel, McKinsey and Company to analysts at investment banks. He tried his utmost to keep everyone happy with monetary gifts but the pressure from the FBI and threat of jail time proved essential in swaying the informants’ loyalty. There can be a further comparison to the prisoners dilemna having predominate role in taking down Raj as he was given 11 years and pleaded not guilty while his  informants received reduced sentences average 3 years for their cooperation and confessions.

Chart of Raj’s Network. Please refer to it.

http://farm3.static.flickr.com/2633/4227734325_c3e2d74b04.

Synopsis: http://www.economist.com/blogs/multimedia/2011/05/guilty_verdict_raj_rajaratnam

Comments

Leave a Reply

Blogging Calendar

October 2011
M T W T F S S
« Sep   Nov »
 12
3456789
10111213141516
17181920212223
24252627282930
31  

Archives