Rajaratnam guilty: The impact on Wall Street

Kai Ryssdal: So with Rajaratnam guilty, pending -- as Heidi said -- appeal, what's next? To talk about all of that, we turn to Jacob Frenkel. He used to be a lawyer for the Securities and Exchange Commission. He's in private practice now. Mr. Frenkel, welcome to the program.

Jacob Frenkel: Pleasure to be here.

Ryssdal: As we just heard Heidi talking about, this was kind of an all-hands-on-deck effort for federal prosecutors in this case. Can we now expect more prosecutions along these lines?

Frenkel: No question about it. And in fact, I believe where the government may have had some question marks by the names of some other senior corporate hedge fund officials on Wall Street, I think they've quickly moved those to a green check mark with confidence that they will now move forward with those prosecutions

Ryssdal: So you've been inside the corridors of power at the SEC as an enforcement lawyer, as a federal prosecutor. Explain for me, if you could, the mindset there as they start to plot more prosecutions. How are they going to do it? What are they going to go after and how are we going to know when things are changing in terms of the government actually regulating effectively?

Frenkel: Well this is in some respects regulation by enforcement because insider trading falls within the general anti-fraud provision of the federal securities laws. But we are already seeing a change in Wall Street to the extent that firms are paying closer attention to the counter-parties with whom their analysts, their traders are speaking. From an enforcement perspective, when the government wins a case such as this -- 14 for 14 counts, an overwhelming verdict -- it creates a sense of empowerment. The belief that even the difficult cases -- the most well-defended, well-funded defenses -- can still result in a victory. And the SEC and the Department of Justice are very confident that they can continue their aggressive approach and mandate.

Ryssdal: A lot of people are going to read or hear about this case. They're going to hear the headline that says: Big Wall Street guy was convicted today. And they're going to say, "A-ha, I knew those so-and-so's were cheating me," you know?

Frenkel: No question about that. Will this make a difference to the small investor? No. The small investor right now is so skeptical of Wall Street. Will it end insider trading? No. But it certainly sends a compelling message that the government views no one on Wall Street as untouchable.

Ryssdal: So this is an admittedly cynical viewpoint, but what are the odds that a lot of the traders and a lot of the people on Wall Street today are saying, "Wow. OK, we better not say any of this stuff on the cell phones and we better not send any e-mails," and not substantively changing behavior?

Frenkel: There is certainly an element, particularly those who are predisposed to violate the law and gain access to information that they should not be using, to try to find other ways to circumvent the ability of the government or others to track what they do. And in fact, that's why the investigative techniques in this case were so powerful. But just as there are hedge fund and other professionals who may be trying to find other ways to exchange information out of sight, there are also many Wall Street professionals who are applauding when they see people who are gaming the system convicted for doing so.

Ryssdal: Jacob Frenkel used to be a federal prosecutor and an enforcement lawyer at the SEC. He's a partner now at Schulman and Rogers. Mr. Frenkel, thank you so much for your time.