The SEC: Outmanned, Outgunned, and On a Roll

Photograph by Thomas Prior

Sanjay Wadhwa at the SEC's offices in Manhattan

One late afternoon in March 2007, Sanjay Wadhwa sat at his desk transfixed by the data on his computer screen. Wadhwa was then a low-level supervisor in the Wall Street office of the U.S. Securities and Exchange Commission investigating a supposedly routine case of “cherry-picking.” The SEC had gotten a complaint that Rengan Rajaratnam, the founder of Sedna Capital Management, a small hedge fund, was doling out a disproportionate share of his best trades to the beneficiaries of a “friends and family” account. It was Wadhwa’s job to figure out what was going on.

The day was winding down, and Wadhwa could have used an evening run. It’s not strange for an employee of the SEC to leave the office at 5:30 p.m. on the dot—the National Treasury Employees Union, which represents the agency’s non-managerial workers, basically encourages it—but Wadhwa stayed at his desk, considering the data. Rengan Rajaratnam was trading technology company stocks, and he routinely did so just before an earnings announcement jolted their prices. Wadhwa also noted that one of Sedna Capital’s lucky insiders happened to be the fund manager’s older brother, Raj Rajaratnam, co-founder of the Galleon Group. The elder Rajaratnam was a hedge fund industry star who had became a billionaire through his ability to “arbitrage reality,” as he not-so-modestly put it. He owned homes in Manhattan, Connecticut, and Miami, and kept a private jet at a small airport near New York to ferry clients to the Super Bowl and Las Vegas.

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