Some years back when Raj Rajaratnam made his first foray into the Sri Lankan market during the time the then United National Party-led government was establishing a peace process (in 2003), this newspaper ran a story suggesting that some of the funds may have been invested on behalf of Tamil militants or that there was a link.

We immediately got a call from an irate broker who accused the paper of ‘killing the market that was taking off with the peace process in place’ with wild accusations. There was no comment from Rajaratnam who stayed clear of the Sri Lankan media for many years, refusing interviews.

There was however no clear evidence that in fact Rajaratnam’s investments came from some of those sources. Subsequently allegations surfaced that Rajaratnam’s foray into charitable causes in the northern peninsula during that peace process was linked to donations channelled through the Tamil Rehabilitation Organisation (TRO) which was subsequently banned and its funds seized by the Government because it was perceived as a LTTE front. The TRO vociferously denied the claims saying ultimately it’s the Tamils in the North who would suffer from this move. Rajaratnam’s connection to the TRO was also not established by evidence.

Eight years later, however the flamboyant fund manager, whose roots are from Sri Lanka, has been trapped by US authorities through wire-taps leading to his conviction in a US court this week on insider trading charges with sentencing due to take place later. He could face some 15 years in jail in the biggest insider trading scandal in the US.

In Sri Lanka the authorities are far, far away from strictly enforcing the law pertaining to insider trading. The maximum the Securities and Exchange Commission (SEC) can do is file charges in a Magistrate’s Court and the accused is either imposed a fine or faces a jail term of upto five years. In all case, the proceedings are stopped halfway and both sides (SEC and the accused) discuss a settlement in terms of compounding the case (which is permitted), rather than go through a protracted court process. In such a situation the accused pays a fine and is not ‘declared guilty.’ Many big ‘guns’ have escaped the net through this rather, cosy arrangement that prevails in the law and recent pronouncements that the SEC law on insider trading would be amended to bring in civil sanctions are yet to be seen, though it is unlikely to serve as a strong deterrent against insider trading except for naming and shaming the perpetrator.

J.C. Weliamuna, former Transparency International Sri Lanka Executive Director, believes that there is a pattern in insider trading and such traders would indulge in this activity in all markets and in this case, Sri Lanka. So was Rajaratnam involved in insider trading in Sri Lanka? His supporters would argue vociferously against any such accusation saying: ‘Provide the evidence’.

Insider trading, it is well known by all, is happening here and cannot be denied. The SEC neither has the resources to take strong and firm action to tackle insider trading nor has an effective law to go by. On the other hand, larger business interests play a key role in impeding such investigations.

Channa de Silva, Managing Director/CEO of LR Global Lanka Asset Management Co and a former SEC Director-General, says there is a need for an institutional framework to allow whistle-blowing on insider trading. “The law needs to be strong and be a deterrent to this kind of activity,” he said, adding that the Rajaratnam conviction is a good lesson for regulatory and exchange authorities, and the investor.

Insider trading can kill a market and most stockmarket-watchers say that the Sri Lankan market as it gets more sophisticated with investment flows gradually increasing in the post-war environment, must have counter-measures to deter this kind of negative activity.

Where does the media figure in the race against insider trading? Is the media caught up in a conundrum of advertising considerations and objectivity while attempting to provide the reader an unbiased story?
Big advertisers regularly using the tool of advertising to either hide the facts pertaining to their companies - despite proclamations of governance, transparency and accountability in their annual reports – and threaten to pull out advertising if the media runs stories adverse to their company.

This is a dilemma faced by all media and since newspapers need to cut losses, break-even or make profits, there is always a clash between editorial independence and business interests. No newspaper can survive without advertising and that puts a lot of pressure on the media. In the 1970s-80s it was government advertising that sustained the media and now it is ads from the private sector. Like all newspapers, we too learnt the bitter lesson that even Supreme Court judgments against corporate Sri Lanka is too ‘sancrosant’ to be commented on, if its not in favour of corporate bosses!

One US lawyer had this to say on the Rajaratnam verdict: “The conviction is a strong reminder that money and privilege do not give anyone the right to trade at an advantage over the rest of the market.”
Thus the only way journalists can be freed of ‘corporate’ control to expose insider trading is to, as suggested by Channa de Silva, bring in a strong law enforcement structure where everyone is equal by the law and violators are jailed on conviction. The law, should not only be available, but be enforced without fear or favour. Such a framework would be beyond and above the pressures faced by the media.

In January 2008, newspapers flashed a picture of the head of Hong Kong’s biggest business chamber being hauled up in court on fraud after an investigation by the city’s anti-corruption commission. The accused, a prominent businesswoman, was full of smiles but there was no escaping the fact that she had committed a criminal offence and that no-one was above the law, however influential one would be.

That is the kind of deterrent that is needed against white collar crimes in Sri Lanka to ensure that business is not tainted with corruption because a corruption-free, law-abiding business community is an essential prerequisite for a functioning democracy.