How to Avoid a Galleon-esque Scandal

Author: Douglas Rice
Published: November 03, 2009 at 11:16 am

The recent Galleon hedge fund scandal made headlines with household names like Intel, Google, and Hilton caught up in the scheme. And while many people breeze by this as another story about greed on Wall Street, there are solid underlying lessons that can help anyone make better financial decisions:

1. If it sounds too good to be true, it probably is.
While it's possible that there's just money laying around for you to find, the odds against it are astronomical. Look for the catch. Galleon was sending and receiving information that could be used to make a quick—and illegal—profit. While that sounds like a quick way to make a buck, the catch was the possibility of a prison sentence for insider trading. If it sounds too good to be true, don’t waste your time looking for the catch. Just pass on it altogether.

2. Assume others aren't looking out for you. They are mostly interested in themselves.
Some of the insiders at Galleon may have not known entirely what was going on but that's no excuse. They should have assumed that the information would be used for the benefit of the others and avoided the situation. No matter why the information was being passed on, it wasn't out of benevolence.

3. There’s no such thing as a free lunch.
The founder of Galleon, Raj Rajaratnam, thought he'd found a way to beat the system. Apparently, he made some money investing based on inside information. That may sound free, but even if he got away with it, it wasn’t. There was significant risk attached to his actions and eating that risk isn't free. And it tastes pretty bad too.

Big names in the headlines garner attention and are easily dismissed with the next day's news, but the lessons we can learn from them can have real impact.


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Article Author: Douglas Rice

Dr. Douglas Rice is a fee only financial adviser that also writes, speaks, and teaches courses about money and financial topics. Collect your free copy of Reflections on Conventional Wisdom at and follow him @drdouglasrice}

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