Top Insider Trading Cases

Let’s just go through the hypotheses step by step. Hypothesis A: If I were to tell you that you were going to end up losing everything you had, that you were going to become destitute, that your kids would be paying back your debt for their rest of their lives and the grandkids probably too, that your house would be repossessed that you would be living like a hobo on the streets, would you or wouldn’t you listen to what I had to say and act on that information? Or hypothesis B: If I were to tell you that same piece of information and that you were to suddenly be in a position to strike it rich, to get the kids off your back because they want (stroke need) this and that, to improve your wealth n-fold would you turn around and say “no sorry, sunshine, no can do, that’s just not the done-thing around here”?

The question doesn’t even really need an answer does it? It’s a non-choice, a no-brainer really. Or at least, you would have to be half-baked to choose either of the choices out of altruism or an unfailing desire to abide by the law to the detriment of your own life for the cause of the common good. How wonderful society would be! But, it doesn’t work like that, does it? It didn’t work like that for the ones that got caught either. Let alone the ones that got away. The ones that get are away are always the biggest fish in the pond, aren’t they? So we are told!

Acting on information in the financial markets. Every country has a law. Although, those laws are never the same. So, as usual insider dealing in the UK is not insider dealing in the USA. In the UK it is far harder to actually prove that there was insider dealing anyhow because of privacy laws (even though, some may say that they are flouted when the government decides to turn a blind eye to them). In fact, if you’re looking for the place to commit insider dealing the UK is probably your best choice. The Brits rarely get anything more than a damn-hefty fine (although admittedly, they are hung, drawn and quartered in good old medieval fashion by the gutter press, which turns out being read by most of the British public, anyway). They are rarely put away behind bars.

So, insider trading. The ones that are employees, directors, executives, shareholders, corporate insiders, the ones in-the-know that have access to information that the average Joe Bloggs or John Doe (or Jane!) don’t have. But then again, Joe Bloggs doesn’t buy shares, or does he, these days?

Here are some of the most recent top insider dealing stories in the USA. The biggest in terms of fines!

1. Well Advantage in Hong Kong had their trading accounts frozen by the Securities and Exchange Commission (SEC) when it was alleged that traders were stockpiling shares waiting for the announcement that CNOOC (China) was going to acquire Nexon Inc. (Canada). In July 2012, traders were accused of holding more than $13 million in profits. The bill was settled for $14 million.

2. Level Global agreed to pay $21.5 million to put an end to the lawsuit that had been brought against them in which the co-founder (Anthony Chiasson – see pictured))

Anthony Chiasson Level Global

Anthony Chiasson Level Global

along with an analyst (Spyridon Adondakis) had carried out insider trading. The case had already resulted in the demise of the hedge fund company.

3. Raj Rajaratnam (pictured)

Raj Rajaratnam of Galleon Group arrested

Raj Rajaratnam of Galleon Group arrested

was the ‘king’ of insider dealing. His little scheme brought about $25 million in gains through acquaintances linked with his his hedge fund, Galleon Group. In October 2009, a total of 29 people ended up being charged with illicit gains from insider dealings on publicly traded companies. The total figure was estimated at $90 million for those 29 people. Rajaratnam was a big fish, then. He was sentenced to 11 years in prison and fined a total of $92.8 million (representing the sum of total gains or losses that would have been incurred had he not bribed executives and ratings agency executives for information). That’s the highest the SEC had ever gone up to until that date. Combined penalties and court-case proceeding costs came to whacking $156 million.

4. SAC Capital Advisors (pictured)

SAC Capital Advisors

SAC Capital Advisors

came to an agreement in March 2013 to make a payment of $602 million in an insider-dealing case and to put an end to a civil lawsuit. That’s the biggest pay-out in history for insider dealing. Some even bragged to the press that they were the highest penalty payment in history! SAC illegally traded stocks for DELL and also made considerable gains (that it agreed to forfeit) in pharmaceutical companies (on the information that they received with regard to Alzheimer disease drugs that were going to be launched on the market). Stephen A. Cohen (founder of SAC Capital Advisors) was named the ‘hedge fund king’ by the Wall Street Journal in 2007. How the mighty fall!

There are some, however, that are campaigning for the legalization of insider trading. It’s not just the traders that are asking for it either. There are economists such as Milton Friedman and Henry Manne. Their claim is that it will introduce information at a faster rate into the market and in today’s fast world there is nothing that can stop that. It’s a bit like doping in sport, isn’t it? Everybody knows the guys are on the stuff, they just keep one pace ahead of the authorities until they get rumbled and then everyone stands back and says “shock, horror [accompanied by gasp with feigned surprise], I didn’t know they were doing drugs to run faster!”. Yeah, right, like the athletes can run faster today just because they drink full-cream milk. Of course!

Maybe those advocates of open-trading are right! If they are and if it ever did get approved, then I want some of it too. Don’t you?

There are over 50 cases that are brought to the attention of the SEC every year. In 2012, there were 58 cases that were filed involving 131 people or companies on the NYSE. But, the vast majority of those are just settled out of court as they would go on for years, otherwise. People hide behind proxies and bury themselves in the depths of pyramidal structures of off-shore companies that are hard to get to the bottom of. But, there are always people ready to denounce them, aren’t there? Anyhow, whistleblowers like Darcy Flynn (ex-employee of the SEC) have already brought to light the fact that the SEC itself also destroyed documents related to alleged financial crimes (staring in the 1990s) committed by US banks (Goldman Sachs, Lehman Brothers to name but two). Wht is it we say about throwing the first stone?

What cases would you add to the list? Who’s your ‘favorite’ insider trader (read: of past cases, not the guy sitting next to you)?

Originally posted Top Insider Trading Cases 

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