Countless articles have been written over the years weighing the so-called ‘benefit’ of insider trading—more efficient markets—with its obvious evils. Yet over the past few years, a new debate has emerged over where to draw the line between aggressive information gathering and personal privacy.
Beginning with Raj Rajaratnam in 2009, the government has increasingly favored wiretaps to convict dozens of insiders. Wiretaps have been very effective—it’s hard to argue your innocence when your voice directly incriminates you—but they’ve also been very controversial.
In one case, the government continued listening to highly personal conversations between a man and his wife. In another, an ordinary civilian was the accidental target of a phone tap for nearly a year.
Do you consider the use of wiretaps to catch insider trading a public service or an invasion of privacy? Where do you draw the line? Are such methods the best way to deter future insider trading violations?
The wiretaps are definitely stepping over the line if there is no solid evidence to engage in them.
While insider trading at its sloppiest level is grossly unlawful, there are some situations in which you are performing deep research and you uncover something that may or may not be considered inside info. For example you talk to a customer over the phone who mentioned something the ceo said in a meeting but didn't know the info was considered inside.
Of course there are some reasons why we should not aggressively convict in situations where there is a grey area between inside and outside info. Getting overly aggressive will make investors keep more distance when engaging a company which may prevent them from finding some important information that should be public like a fraud.
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