The ghost of Raj Rajaratnam still haunts hedge funds. Some make employees sign pledges that they’ve not acted on illicit tips, others snoop on their traders with keystroke-reading software. At the compliance meetings everybody has these days, prison isn’t an off-the-wall topic.

The illegal-trading probes that netted crooks at more than a dozen funds may have reached an unofficial finale with a whimper last week -- a deal allowing SAC Capital Advisors LLC’s Steven A. Cohen to return to the industry in two years -- but the chill from the fates of Rajaratnam and the 75 others convicted hasn’t faded. The legacy of the crackdown might be a healthy suspicion that Big Brother really is watching.

“It’s now been drilled into the public consciousness that insider trading is a high-risk proposition,” said Stephen Crimmins, a lawyer with the U.S. Securities and Exchange Commission from 1987 to 2001 who’s now with the firm Murphy & McGonigle. “Ten years ago, people figured that the odds were pretty good that they wouldn’t get caught.”

True, Wall Street’s probably not as spooked as it was just after Rajaratnam’s 2009 arrest and 2011 sentencing to 11 years in prison. The government also alarmed traders by building its case against the billionaire fund manager with wiretaps and informants, tools typically pulled out when the marks are drug dealers or racketeers. One reason there’s less anxiety is the U.S. Supreme Court decision in October to let stand a ruling that overturned two convictions, led to the dismissal of 12 cases and made it harder to prove insider trading by requiring evidence a tip’s recipient knew the leaker got a concrete benefit.

But changes in policy and behavior spurred by the indictments, raids and liquidations of the past seven years might be here to stay, even with Cohen, prosecutors’ biggest quarry, having gotten away with a relatively light slap.

‘Watching Headlines’

That’s in part because “there’s a recognition now that if there’s a case against you, that’s already a loss” because of the negative publicity, said Ron Geffner, a partner at Sadis & Goldberg LLP and a former SEC enforcement lawyer who represents hedge funds. Investors pulled millions out of funds and some firms shut down even though charges against their employees were dropped or never even filed.

The reverberations have extended to the Wharton School of the University of Pennsylvania, whose alumni include convicted insider-traders Rajaratnam, Rajiv Goel and Anil Kumar. It has a renewed focus on business ethics and a required course called Responsibility in Professional Services taught by David Zaring, a former U.S. Justice Department lawyer. “My students do watch the headlines,” he said. “They’re pretty interested in recent prosecutions and seem relatively worried to me, so that’s good news for the government.”

Fund compliance officers dial in to more conference calls with analysts than before, and former regulators and prosecutors are popular hires. Consulting firms are getting new business. “We’re seeing a significant spike in terms of hedge funds coming to us not only to have us vet and monitor their employees but also in terms of investigational due diligence on actual deals,” said Julian Moore, senior managing director at K2 Intelligence LLC, which counsels funds on compliance and cyber-security.

Some firms monitor e-mail and instant-message communications and have banned personal trading accounts, and are hiring legal advisers to help keep themselves in line. “It’s much more often that we have the founders of a firm, or top principals, in key training sessions,” said Steve Nadel, a partner at Seward & Kissel LLP, which offers regulatory compliance coaching.

The regulatory compliance sessions often aren’t subtle, according to hedge-fund employees who’ve attended them. Presentations may include run-downs of the number of insider- traders in prison, photos of white-collar perp walks and snippets of wiretap recordings.

New Crimes

Some of the changes are the products of post-fiscal crisis regulations requiring hedge funds to register with the SEC and create written policies on everything from valuing holdings to employees’ trading in personal accounts. In any event, the funds don’t get a lot of credit for all the care they’re taking to obey the rules. “People aren’t suddenly going to find Jesus,” said James Cox, a professor at Duke University School of Law. “It’s just that in certain eras we put more resources in trying to catch individuals,” and that’s a deterrent.

Bad apples will always come up with new ways to commit crimes, such as using computer hackers to access non-public information. “As time passes and memories fade, there will always be some who think they can engage in activities they should know will come back to haunt them,” said former SEC Chairman Harvey Pitt.

The feds haven’t pulled up stakes, though most cases growing out of the probes that started around 2007 -- dubbed Perfect Hedge and Matchmaker -- have ended. The government won 80 convictions. SAC agreed to pay a record $1.8 billion in 2013 to resolve a criminal case that alleged six people engaged in insider trading while working there. The SEC accused Cohen of failing to properly supervise a portfolio manager who’s now in prison. At the time, enforcement officials sought a lifetime ban on Cohen running a hedge fund, according to people with knowledge of the situation.

Instead, the SEC made the two-year deal, widely viewed as a victory for the founder of a firm that U.S. Attorney Preet Bharara called a “magnet for market cheaters.” (Cohen in 2014 converted SAC into a family office called Point72 Asset Management LLP, and the SEC insisted its supervision of that firm be part of the settlement, according to a person familiar with the matter.)

It’s not clear whether the crackdown was a factor in stock- picking hedge funds’ lackluster returns in recent years. After Rajaratnam’s arrest, those funds gained about 31 percent through the end of last year, trailing the 83 percent jump for the Standard & Poor’s 500 Index, according to Hedge Fund Research Inc. Equity-focused funds rose 137 percent in the decade before authorities raided Rajaratnam’s firm, compared with a 14 percent S&P decline. The reversal of fortune has drawn questions about whether hedge funds are worth their fees -- typically 2 percent of assets under management and 20 percent of investment gains.

One manager who has defied the hedge-fund slump is Cohen. In 2015, when stock funds, on average, made no money, his Point72 was up 15.5 percent, after operating expenses. In 2018, investors may get a chance to put money with him again.