Insider Trading...on the Comeback
With Raj Rajaratnam's lawyers concluding their defense statements earlier this week the Galleon saga will soon be over. Rajaratnam stands accused of pocketing over $50 million in illicit profits and faces up to a quarter century of jail time if convicted.
Raj's defense team has stood solid behind the theory that he only used publicly available information in his trades, while the Feds are beating the insider trading drum with consistent pressure. For me, this case has been less about actual guilt or innocence and more about the laissez faire attitude towards the issue exhibited by the industry itself.
In fact, maybe laissez faire isn't the right term...maybe huh!? is more accurate. Though mainstream media outlets are still pushing the story hard, I have heard little if no industry people discussing it in detail. Raj has certainly gotten very little playing time on our own boards of late. If any, at all.
This shouldn't be too shocking with all the things we've been through over the past few years. After all, a near economic collapse, the BP spill and the MENA implosion (among other events) all dwarf a little insider trading, right?
I wouldn't be so quick to agree. Especially for those of us planning to make finance a long term career choice. If you don't sit in your cubicle dreaming of jumping ship, this case and the verdict should matter a great deal to you and your future prospects.
Though the days of Boesky and Milken are long gone and the luster has faded from insider trading, I think there is a great likelihood it makes a comeback. Like some kind of zombie climbing out of the grave, to terrorize a new generation of financiers with old fears.
Living in a world where traders constantly instant message and text one another, insider trading prosecutions (and convictions) can very easily return to vogue... and fast.
If 50 Cent can make $ 8.7 million with a single Tweet, you can bet that a few savvy hedge fund managers can make much more if they are working in collusion and manipulating data.
I am curious how the current generation of wall street kids and career ladder climbers looks at the issue. Is it even a blip on your radars? How would the game change if the Feds went into pre-Boesky mode and simply ignored the practice?
We could definitely use the added volume and liquidity which would surely come...
Don't think the Feds aren't thinking about all of this. Don't think that Raj isn't being made an example of, regardless of guilt or innocence. Don't think the government won't have a fantastic revenue/extortion stream flowing if the gavel comes down on Galleon. Don't think that this isn't a crucial case for Wall Street and your own future. Or better yet...don't think at all, maybe this all goes away.
Its a tough issue in the age of texting and instant messaging. How does one really define insider trading? What is the minimum requirements for public knowledge? These are the questions that need to be updated for this day and age. Is it public knowledge of the hackers from wikileaks hack into a corporate data base and expose negative information and traders jump on that, or is that not considered public information because it was not released by the company? These are the types of questions that must be answered before any federal agency wants to jump into the shark tank and start catching inside traders. The rules have to be relevant for the times.
These cases just make me wonder how much insider trading goes on in the world of FICC or exotic equity products.
Is he related to WSO Raj?
There's tons of insider trading that goes on every day. Bankers, traders, doctors, teachers... everyone. Its largely viewed as a victimless crime, I personally don't do it for fear of losing my job and probably a little bit because theirs a bit of a level of confidentialty you're entrusted with that I tend to have principles about... but really... I feel like maybe thats just because the upside isn't enough... everyone has their price after all. Everyone.
Lets say I'm working on a deal that I know is going to restructure a company A (USA) in a way which will require them to buy some product from a specific company B (Germany). This increase in sales will double B's production which will increase their purchase of some commodity from company C in South Africa who is the main business partner of a mining company D there.
And I tell this to my friend in Poland, who buys shares of the company D in south africa that i know is goint to have lets say a 30% increase in earnings because of the deal.
HOW can anyone possibly track this... Its a sure thing, the stock's gonna move... but really... do the guys in SEC or wherever have the resources to track this?
They can't, it's the SEC man... You really think some sap getting 35k a year is going to give enough of a shit to track beyond 1 degree of separation?
probably not... so this kind of thing happens all the time then... it could bring another 10% extra pay per year, or just have an account for retirement and spend everything you get paid
Thor1000 -- that's not a definition of insider trading. You've just defined market intelligence. Simply because Company A is going to purchase Company B's mining production does mean that the Company's B increased earnings will corelate in upwards stock movemen. Also Company A can purchase the same mineral from elsewhere. This is privildege information and not confidential information.
However, If Company A decided to purchase Company B for whatever reason then trading the latter's stock, with confidential information, would be considered insider trading.
That is only kind of true, it comes down to who is looking at it. Some judges will agree with you, others wont.
But acting on this priviledge information can still get you good returns, with little risk.
Like you said theres no way of knowing if the earnings will push the price up, but the chance of that happening is not so small, since this is an unexpected increase that could not have been priced in before it got public..
So I would be masking inside info with a lot of public info and publicly known supplychain. but the public info itself does not provide you with enough data to make an investment decision.
I'm under the impression that the feds are just trying to make an example out of him, and are trying to prove they're doing their job. He's by no means the worst, but I can't say he was smart about it at all: GS was the center of attention at the time. I wonder how the expert network system is going to be affected, as the gov't typically uses big cases like this to justify rule changes.
http://static.seekingalpha.com/wp-content/seekingalpha/images/secinvest…
I met a trader about a year ago who knew Raj personally and even spent time at his home a few times. She sweared that he didn't do it and he's "not the type of guy" to get involved in trading on non-public information....whatever that means.
It seems almost impossible to get caught if you're doing it on a small scale. But it's also not really worth it if you're doing it on a small scale. If I tip off my dad on a company and he's got a little $100-$200k investment account out in the suburbs, and he throws 10% behind that company, then he might make like a $10K gain, and this will never raise any flags. But at the same time, that $10K is not worth breaking the law.
Now if I tip him off and he moves his entire portfolio into that one company and adds in an additional $200K out of nowhere, now you're talking about something significant. But it's that kind of activity that raises flags. I can't imagine going back and tracking unusual trading activity in the days before a major announcement is difficult - everything today gets recorded.
I feel like this is absolutely out of control... there is no way SEC can track 75% of this at a time and match who did what, and at what prices.
Most of the time people can argue why they bought in regardless of insider information with fundas and techs... sentiment... its like a big joke on the gov.
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