The US Justice
Department and the US SEC filed
insider trading complaints against the billionaire Raj Rajaratnam,
his Galleon hedge fund and several other friends and associates a few
days ago. All the interesting stuff (for example, the transcripts of
telephone conversations) are in the criminal complaints filed by the
Justice Department. If one reads only the SEC complaint, one would not
realize that there are several smoking guns here.

The fact that the whole thing was made possible by the FBI’s
use of informants and wiretaps appears to provide some support for a
controversial paper by
Peter Henning posted at SSRN last month. In this paper, titled
“Should the SEC spin off the enforcement division?,”
Henning argued that “To allow the SEC to regulate Wall Street
properly, splitting off at least a portion of the enforcement function
to an agency with expertise in prosecutions – the United States
Department of Justice – is at least worthy of consideration as
the government looks to increase regulation.”

One reason why the Department of Justice had all the advant