How Common is Insider Trading?

How common would most of you say insider trading is on Wall Street? Im not too well connected on the street, but some of the people I know who worked there in the 80's say it was an everyday occurrence, with millions being made by everyone. Does it consist of investment bankers exchanging information with other investment bankers from other firms in a strip club or is it more complex than that, involving bribery, blackmail, surveillance equipment, and all the other things one would expect of a modern day Gordon Gekko? Everyone knows insider trading is a difficult crime to prosecute, but just how often does it occur without prosecutions ever being made? Is there anything legislators can do to make prosecutions more effective? Similar to what the RICO statues and the witness protection program did to organized crime.

Comments (59)

Best Response
Dec 9, 2010

...you a fuckin' cop?

"Millionaires don't use astrology, billionaires do"

    • 5
Dec 9, 2010

No, I am most definitely not a cop. I believe in a balanced playing field for all investors, and would like to know how much of a disadvantage im at with my Scottrade account with $4500 dollars in it.

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.

-Niccolo Machiavelli

    • 1
Dec 9, 2010
mikegj1:

No, I am most definitely not a cop. I believe in a balanced playing field for all investors, and would like to know how much of a disadvantage im at with my Scottrade account with $4500 dollars in it.

You're at a huge disadvantage, but its not because of insider trading. Insiders trading on non-public information won't move prices too much. It's mainly because you're competing against professionals with much more to lose than $4500, thus they study and know these companies inside out.

My suggestion is to focus on small companies that aren't covered by analysts, in hopes of finding opportunities "under the radar"

Dec 9, 2010
Slacker23:
mikegj1:

No, I am most definitely not a cop. I believe in a balanced playing field for all investors, and would like to know how much of a disadvantage im at with my Scottrade account with $4500 dollars in it.

You're at a huge disadvantage, but its not because of insider trading. Insiders trading on non-public information won't move prices too much. It's mainly because you're competing against professionals with much more to lose than $4500, thus they study and know these companies inside out.

My suggestion is to focus on small companies that aren't covered by analysts, in hopes of finding opportunities "under the radar"

I've tried the penny stock route, and let's just say NEVER AGAIN! The first stock I ever purchased was GlobeTel, and the stratellite was suppose to revolutionize the telecommunications industry. After they signed a $400 million dollar contract with Russia, the stock exploded, and I was under the impression I had found the next Microsoft, so I never sold. Within one year the house of cards came falling down, and I think I can honestly say I was the world's only 14 year old to be screwed over with a scam involving the Russian mafia. Since then I've done my best to mirror successful long-term investors, my personal favorite being Mohnish Pabrai, since Warren Buffet is too big to touch stocks that have explosive potential.

Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions.

-Niccolo Machiavelli

    • 3
Dec 9, 2010

Insider trading undoubtedly occurs quite frequently.

Dec 9, 2010

So common that it should be legal.

Dec 9, 2010

Penny-stock investing never works.

As for insider trading, it definitely occurs far more often than the number of prosecutions would suggest (hell, look at the Rajaratnam trial - he ran a huge insider ring that involved the protege of McKinsey's managing director). As for how it happens - even if anyone on this board is an inside trader, they will most certainly not divulge that.

    • 1
Dec 9, 2010

I have certainly noticed stock prices move significantly BEFORE merger announcements.

    • 1
Dec 9, 2010

Ever wonder why there's tons of options activity on a stock right before they announce a big merger?

Dec 9, 2010

Just put it in gold and pull out once Glen Beck stops running promos

Dec 9, 2010

It's quite obvious that insider trading is rampant. I'd love to see stricter measures put in place.

Dec 9, 2010

Nice try, FBI.

Dec 9, 2010

Would I be correct in assume that insider trading is like drug dealing in that for every 1 that gets caught 10+ get away with it?

Dec 9, 2010

1. There seems to be a prevailing notion that insider trading is a victimless crime.

2. Younger wall-streeters have less money/ maturity... thus $10 million is a lot more important to them than their elders.

3. If you surveyed the entire country (all professions) I bet that the percentages would be about the same.

Dec 9, 2010

im pretty sure if yo uasked anyone 'if you could do something that would make you 10mm without really harming anyone and had no chance of getting in trouble for it, would you?' the answer would be yes. if you remove ALL chances of getting in trouble for something (which is unrealistic) then, quite honestly, i dont know why people would say no. its 10 million.

and i definitely dont think insider trading in reality (or anything else illegal finance wise) is wise because the small amount you gain isnt worth the risk to your career

but for 0 risk to your career and instant pocketing of 10mm?

  • Financial Rep in Consulting
Dec 9, 2010

Just 38%?

Dec 9, 2010

62% are liars?

Dec 9, 2010

Studies that show a different rate (of whatever it is being studied) in younger vs older segments of the population are really interesting to me, since it's always up for debate whether it represents a sea change in society's beliefs, behaviors, etc. or simply that youth tend to change their minds as they get older.

In this case, I'd imagine that it's a bit of both. I think, in some ways, people are less scrupulous today than they were years ago, especially when it comes to crimes where the victims aren't obvious. However, it also likely reflects that as people get older, they care a lot more about their reputation (even just in their own eyes) since they've invested so many more years in it.

Dec 9, 2010
Jawboneofa:

I think, in some ways, people are less scrupulous today than they were years ago, especially when it comes to crimes where the victims aren't obvious.

why do you say that? I would have said the opposite, especially in this industry.

Dec 9, 2010

Well, not compared to the 80's and 90's in terms of out and out fraud I guess. I was thinking compared to ~50 years ago, which is a stupid benchmark I realize now, since most of those guys are retired or passed these days.

Not that anecdotes are reliable, but it's been my experience that people today are less and less beholden to "arbitrary" standards, which is widely considered to be anything without an obvious and immediate moral effect, and more concerned with what they can get away with.

Dec 9, 2010

@Jawboneofa: Does anyone see any similarity to this survey and those that show Gen. Y doesn't really care about illegally downloading music (i.e. as in both crimes don't have discrete victims)?

Also, I wouldn't say that younger people are less ethical but just ethical in a different way. Most people in the 40s and 50s say they are very ethical but in reality they just strictly follow the rules. If they found a legal code deep in a law library book allowing them to do something awful (i.e. run a massive ponzi scheme) many of them would do that and then argue that they are ethical because they aren't breaking the law. Gen Y thinks more about the consequences of their actions I believe. Also, Gen Y grew up at a time when information access is a lot more egalitarian (this refers to general information though not necessarily that related to public companies)

Dec 9, 2010

gotta beat your peers, key to happiness.

wait nvm,

Dec 9, 2010

It's a silly question to dissect. I'm surprised most people said no when told THEY WOULDN'T GET CAUGHT. Either way, not sure where people are getting this whole notion that previous generations were more prone to following the law. The only thing you can observe is OLDER guys going away for a long time after running massive scams. The Raj Rajaratnams arent 20's year olds. So clearly there were some from way back. The only way to draw any conclusions you're drawing is if you held the same survey back then. It's laughable to think some previous generation is more law abiding when you aren't asking them back when they were young. All you can possibly say is older people now tend to be more responsible and logical than when they were you get just based on maturity, etc.

    • 1
Dec 9, 2010
StryfeDSP:

Would I be correct in assume that insider trading is like drug dealing in that for every 1 that gets caught 10+ get away with it?

That, plus the enormous gray area between material and immaterial, public and nonpublic that makes 99% of cases Zimmerman-tough to convict

Dec 9, 2010
monkey_business:

"24 percent said they would "engage in insider trading to make $10 million if they could get away with it."

If the "getting away with it" part was guaranteed, you bet your ass

Fear of punishment keeps me honest in all things

Dec 9, 2010

LOL

Dec 9, 2010

Chinese Wall.

Oh, and its illegal

Dec 9, 2010

thank you Bobb, I'll look it up on the internet

Dec 9, 2010
Bobb:

Chinese Wall.

Oh, and its illegal

they're actually more PC now. it's the "wall that used to reference people of sino-geographic descent"

Dec 9, 2010

You put the information on your facebook status, that way it becomes "public information", and so long as you execute your trade after you post (after it being part of "public record") you should be good to go without any fear of reprisal.

LOL

Dec 9, 2010
Another:

You put the information on your facebook status, that way it becomes "public information", and so long as you execute your trade after you post (after it being part of "public record") you should be good to go without any fear of reprisal.

LOL

GENIUS!

Dec 9, 2010

That's a good idea, but probably should post it on an anonymous and untraceable account.

Dec 9, 2010

We rely on the honour of bankers

Dec 9, 2010

Mostly assume people are honest.

Dec 9, 2010

You are the company you keep. Let's say you are a well known private equity fund that invested money in SAC. You leave your money in the fund while they are being investigated for insider trading as a show of support. Now you are mentioned in every release when they talk about money in and out of SAC and the ongoing investigation. It is really a PR mess in my opinion, regardless of whether they actually did anything wrong or not. By pulling the money out you can turn around tell your investors that you had no idea of the illicit trading and immediately pulled your money out when allegations came to light.

Maybe a better question is why on earth would you leave your money in a fund that is under this intense of scrutiny? Besides a showing of solidarity and belief that nothing wrong was done, i don't really think there is any reason. There are plenty of places to go park your money and as you said, if the out performance was due to illicit trading, that advantage is now non-existent. Personally I think just the PR of having your money there is reason enough to get out.

    • 1
Dec 9, 2010

We kind of encountered this with Madoff, and it ensnared several large investors. The Wilpon family comes to mind. They made a bunch of money with Madoff and bailed before he got caught, ostensibly pocketing their profits (they had no knowledge it was a scam). Unfortunately for them, they had to disgorge those profits when Madoff went into receivership.

http://www.nytimes.com/2012/03/20/sports/baseball/...

Dec 9, 2010

I've never heard of any outside investors having to give up their profits due to involvement in a firm that engaged in insider trading. However, I can certainly see the PR mess that can result for institutional investors.

On the other side of the fence, if I was just some rich guy and not managing other peoples' money, I think an insider trading rumor might actually draw me to the fund. As long as they're not currently under investigation. There is no denying that insider trading creates alpha and mitigating the risk of going to prison to some other HF manager is certainly worth 2 and 20 in my book.

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010

It's less alpha than you might think. I've had plenty of "hot tips" in my day, and more often than not they don't pan out. And I'm not just talking about the ones that ended up being false. I'm talking about the ones that ended up being true and still had no material impact on the stock price. If you made a career of trading on inside information, you'd go broke pretty quick.

Dec 9, 2010
Hooked on LEAPS:

If I heard one of the funds I was invested in may be involved in insider trading, I would view at as an opportunity to make a profit off something illegal, while someone else is taking all the legal risk. I kind of thought this was the definition of alpha. Worst case scenario the government shuts them down and outside funds need to be returned to investors.

I can think of only two explanations for outside investors fleeing:

1) If the public knows your probably involved in insider trading, then the government probably does too. Thus it is less likely the fund will outperform the market moving forward with the government watching everything they do. SAC is a perfect example of this.

2) If someone is willing to commit one felony, a lot of people assume that there is other illegal stuff they may do with investor money. Personally, I think this is a flawed logic because insider trading and a ponzi scheme are two very different crimes.

Are there any other angles I'm missing?

3x penalty on ill-gotten gains... a negative 10-digit print will put a damper on returns.

Dec 9, 2010
Edmundo Braverman:

It's less alpha than you might think. I've had plenty of "hot tips" in my day, and more often than not they don't pan out. And I'm not just talking about the ones that ended up being false. I'm talking about the ones that ended up being true and still had no material impact on the stock price. If you made a career of trading on inside information, you'd go broke pretty quick.

I've heard this before from pretty much most people who have acted on hot tips. I guess the best answer for this is that not all insider information is created equal. A hot tip is a lot different that putting the infrastructure in place to get the information first or second hand, before it has been passed along a dozen or more times. Cohen is a good example of this. He produced market raping returns for an extended period of time, but once the Feds started watching his every move his returns went to shit. Also, I would never choose to invest in a HF simply because I heard a rumor that they are involved in insider trading, they would also have to have a pretty good track record of returns and everything else that people look for in a hedge fund. I'm just saying that rumors of insider trading would be more of a deal maker than a deal breaker for me, if I was investing my own money and not institutional money.

justin88:
Hooked on LEAPS:

If I heard one of the funds I was invested in may be involved in insider trading, I would view at as an opportunity to make a profit off something illegal, while someone else is taking all the legal risk. I kind of thought this was the definition of alpha. Worst case scenario the government shuts them down and outside funds need to be returned to investors.

I can think of only two explanations for outside investors fleeing:

1) If the public knows your probably involved in insider trading, then the government probably does too. Thus it is less likely the fund will outperform the market moving forward with the government watching everything they do. SAC is a perfect example of this.

2) If someone is willing to commit one felony, a lot of people assume that there is other illegal stuff they may do with investor money. Personally, I think this is a flawed logic because insider trading and a ponzi scheme are two very different crimes.

Are there any other angles I'm missing?

3x penalty on ill-gotten gains... a negative 10-digit print will put a damper on returns.

I've never heard of this before. So all of SAC's outside investors are going to pay a penalty if Cohen is convicted? I haven't heard of this happening to any Raj Rajaratnam's outside investors either. This doesn't seem right.

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010
excelltech:

never saw anything wrong with insider trading srs. listen to Milton Friedman's take on it, dat brah sums it up perfectly. also having insider info is alpha as phuark and seperates the men from the betas of the pack.

breh insider trading is bad and unethical - hence no one does it in finance ever

SAC FOR LYFE SCREW 2 and 20 !!!

"so i herd u liek mudkipz" - sum kid
"I'd watergun the **** outta that." - Kassad

Dec 9, 2010
Hooked on LEAPS:
Edmundo Braverman:

It's less alpha than you might think. I've had plenty of "hot tips" in my day, and more often than not they don't pan out. And I'm not just talking about the ones that ended up being false. I'm talking about the ones that ended up being true and still had no material impact on the stock price. If you made a career of trading on inside information, you'd go broke pretty quick.

I've heard this before from pretty much most people who have acted on hot tips. I guess the best answer for this is that not all insider information is created equal. A hot tip is a lot different that putting the infrastructure in place to get the information first or second hand, before it has been passed along a dozen or more times. Cohen is a good example of this. He produced market raping returns for an extended period of time, but once the Feds started watching his every move his returns went to shit. Also, I would never choose to invest in a HF simply because I heard a rumor that they are involved in insider trading, they would also have to have a pretty good track record of returns and everything else that people look for in a hedge fund. I'm just saying that rumors of insider trading would be more of a deal maker than a deal breaker for me, if I was investing my own money and not institutional money.

justin88:
Hooked on LEAPS:

If I heard one of the funds I was invested in may be involved in insider trading, I would view at as an opportunity to make a profit off something illegal, while someone else is taking all the legal risk. I kind of thought this was the definition of alpha. Worst case scenario the government shuts them down and outside funds need to be returned to investors.

I can think of only two explanations for outside investors fleeing:

1) If the public knows your probably involved in insider trading, then the government probably does too. Thus it is less likely the fund will outperform the market moving forward with the government watching everything they do. SAC is a perfect example of this.

2) If someone is willing to commit one felony, a lot of people assume that there is other illegal stuff they may do with investor money. Personally, I think this is a flawed logic because insider trading and a ponzi scheme are two very different crimes.

Are there any other angles I'm missing?

3x penalty on ill-gotten gains... a negative 10-digit print will put a damper on returns.

I've never heard of this before. So all of SAC's outside investors are going to pay a penalty if Cohen is convicted? I haven't heard of this happening to any Raj Rajaratnam's outside investors either. This doesn't seem right.

Who said anything about outside investors?

Say they convict Martoma but don't get Stevie. Who's gonna pay the fine? Martoma doesn't have enough money, so.... it's gonna be the fund.

Dec 9, 2010

Refer to the original post. This entire thread is speaking from the outside investors point of view.

In a worst case scenario the fund is shut down by the gov or they can't pay their bills. In which case the fund would have to return money to outside investors. I'm pretty the fund can't take money away from investors anything beyond 2 and 20 or whatever the agreement was.

For example. Goldman was invested in SAC for a long time and has made a decent profit over the years. If Cohen is found guilty, I do not see any situation in which Goldman has to pay a penalty, even though they profited for years. Try and find an example of any of Raj's investors paying a penalty for insider trading, even though some people benefited from it for years.

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010
Addinator:

You are the company you keep. Let's say you are a well known private equity fund that invested money in SAC. You leave your money in the fund while they are being investigated for insider trading as a show of support. Now you are mentioned in every release when they talk about money in and out of SAC and the ongoing investigation. It is really a PR mess in my opinion, regardless of whether they actually did anything wrong or not. By pulling the money out you can turn around tell your investors that you had no idea of the illicit trading and immediately pulled your money out when allegations came to light.

Maybe a better question is why on earth would you leave your money in a fund that is under this intense of scrutiny? Besides a showing of solidarity and belief that nothing wrong was done, i don't really think there is any reason. There are plenty of places to go park your money and as you said, if the out performance was due to illicit trading, that advantage is now non-existent. Personally I think just the PR of having your money there is reason enough to get out.

Agreed with everything you said. And I can certainly see how funds of funds like Blackstone, Private wealth management divisions of firms like BAML and Citi not to mention pension and endowment funds would want to steer clear of ongoing scandals like this one.

My only questions is why would a Private Equity fund invest in an equity Hedge Fund like SAC? I know that SAC has done some buyout deals along with KKR and the like but that is more in the co-investor capacity on a deal by deal basis.

Dec 9, 2010

Off topic, but two questions.

1) Why did one of the mods insert a picture into my original post? This usually only happens if something is being front paged.

2) Why does the original post say it was posted at 11:36 PM when that is in the future? My settings are EST.

Big brother is fucking with me.

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010
Hooked on LEAPS:

Off topic, but two questions.

1) Why did one of the mods insert a picture into my original post? This usually only happens if something is being front paged.

2) Why does the original post say it was posted at 11:36 PM when that is in the future? My settings are EST.

Big brother is fucking with me.

My guess re 2) is that is cause Andy is in Bs.As which is one hour ahead of EST. Either that or we just went through a time warp (again!)

Dec 9, 2010
brandon st randy:
Addinator:

You are the company you keep. Let's say you are a well known private equity fund that invested money in SAC. You leave your money in the fund while they are being investigated for insider trading as a show of support. Now you are mentioned in every release when they talk about money in and out of SAC and the ongoing investigation. It is really a PR mess in my opinion, regardless of whether they actually did anything wrong or not. By pulling the money out you can turn around tell your investors that you had no idea of the illicit trading and immediately pulled your money out when allegations came to light.

Maybe a better question is why on earth would you leave your money in a fund that is under this intense of scrutiny? Besides a showing of solidarity and belief that nothing wrong was done, i don't really think there is any reason. There are plenty of places to go park your money and as you said, if the out performance was due to illicit trading, that advantage is now non-existent. Personally I think just the PR of having your money there is reason enough to get out.

Agreed with everything you said. And I can certainly see how funds of funds like Blackstone, Private wealth management divisions of firms like BAML and Citi not to mention pension and endowment funds would want to steer clear of ongoing scandals like this one.

My only questions is why would a Private Equity fund invest in an equity Hedge Fund like SAC? I know that SAC has done some buyout deals along with KKR and the like but that is more in the co-investor capacity on a deal by deal basis.

It's Blackstone's fund-of-funds

Dec 9, 2010
Hooked on LEAPS:

Off topic, but two questions.

1) Why did one of the mods insert a picture into my original post? This usually only happens if something is being front paged.

2) Why does the original post say it was posted at 11:36 PM when that is in the future? My settings are EST.

Big brother is fucking with me.

I saw this on the front page.

Dec 9, 2010

I guess it's a little delayed or someone inserted a picture intending to put it on the front page but got side tracked before they did.

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010
Hooked on LEAPS:

Refer to the original post. This entire thread is speaking from the outside investors point of view.

In a worst case scenario the fund is shut down by the gov or they can't pay their bills. In which case the fund would have to return money to outside investors. I'm pretty the fund can't take money away from investors anything beyond 2 and 20 or whatever the agreement was.

For example. Goldman was invested in SAC for a long time and has made a decent profit over the years. If Cohen is found guilty, I do not see any situation in which Goldman has to pay a penalty, even though they profited for years. Try and find an example of any of Raj's investors paying a penalty for insider trading, even though some people benefited from it for years.

For an outside investor, especially a large one, it's a typical short optionality situation. Specifically, yes, you can make money, maybe for a good long time. However, when/if things go wrong, you might have a couple of issues. Firstly, it's reputation, which is a big deal, especially for some. Secondly, who says the hedge fund can't take money away from investors? Let's say the fund made 10% of $10bn = $1bn this year, but legal fees and fines are $2bn. Et voila, the fund lost 10% this year. Granted Steve Cohen did voluntarily assure investors that all of these expenses are coming out of his personal funds, but you really cannot be sure this will always be the case. Moreover, the longer you stay, the more risk that you might be rushing for the exit together with everyone else, which is never a good thing. There's other concerns as well.

In summary, being short these various option is almost never worth it, no matter how good the "theta".

Dec 9, 2010
Martinghoul:
Hooked on LEAPS:

Refer to the original post. This entire thread is speaking from the outside investors point of view.

In a worst case scenario the fund is shut down by the gov or they can't pay their bills. In which case the fund would have to return money to outside investors. I'm pretty the fund can't take money away from investors anything beyond 2 and 20 or whatever the agreement was.

For example. Goldman was invested in SAC for a long time and has made a decent profit over the years. If Cohen is found guilty, I do not see any situation in which Goldman has to pay a penalty, even though they profited for years. Try and find an example of any of Raj's investors paying a penalty for insider trading, even though some people benefited from it for years.

For an outside investor, especially a large one, it's a typical short optionality situation. Specifically, yes, you can make money, maybe for a good long time. However, when/if things go wrong, you might have a couple of issues. Firstly, it's reputation, which is a big deal, especially for some. Secondly, who says the hedge fund can't take money away from investors? Let's say the fund made 10% of $10bn = $1bn this year, but legal fees and fines are $2bn. Et voila, the fund lost 10% this year. Granted Steve Cohen did voluntarily assure investors that all of these expenses are coming out of his personal funds, but you really cannot be sure this will always be the case. Moreover, the longer you stay, the more risk that you might be rushing for the exit together with everyone else, which is never a good thing. There's other concerns as well.

In summary, being short these various option is almost never worth it, no matter how good the "theta".

I didn't think the fund could charge more than the agreed upon number for expenses. For example, when all the major banks had to pay fines for for the housing crisis and were unprofitable, none of them started digging into their clients' wealth management accounts to pay for it. I guess hedge funds are regulated differently?

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010

The LP Agreement will state that the GPs can charge the 2 and 20, plus certain fees, PLUS pull money directly from the fund to pay their legal expenses up to a pre-specified limit.

Dec 9, 2010
Hooked on LEAPS:
Martinghoul:
Hooked on LEAPS:

Refer to the original post. This entire thread is speaking from the outside investors point of view.

In a worst case scenario the fund is shut down by the gov or they can't pay their bills. In which case the fund would have to return money to outside investors. I'm pretty the fund can't take money away from investors anything beyond 2 and 20 or whatever the agreement was.

For example. Goldman was invested in SAC for a long time and has made a decent profit over the years. If Cohen is found guilty, I do not see any situation in which Goldman has to pay a penalty, even though they profited for years. Try and find an example of any of Raj's investors paying a penalty for insider trading, even though some people benefited from it for years.

For an outside investor, especially a large one, it's a typical short optionality situation. Specifically, yes, you can make money, maybe for a good long time. However, when/if things go wrong, you might have a couple of issues. Firstly, it's reputation, which is a big deal, especially for some. Secondly, who says the hedge fund can't take money away from investors? Let's say the fund made 10% of $10bn = $1bn this year, but legal fees and fines are $2bn. Et voila, the fund lost 10% this year. Granted Steve Cohen did voluntarily assure investors that all of these expenses are coming out of his personal funds, but you really cannot be sure this will always be the case. Moreover, the longer you stay, the more risk that you might be rushing for the exit together with everyone else, which is never a good thing. There's other concerns as well.

In summary, being short these various option is almost never worth it, no matter how good the "theta".

I didn't think the fund could charge more than the agreed upon number for expenses. For example, when all the major banks had to pay fines for for the housing crisis and were unprofitable, none of them started digging into their clients' wealth management accounts to pay for it. I guess hedge funds are regulated differently?

Some funds (incl SAC, if I am not mistaken) charge all costs to the investor, which means that their management fee isn't a fixed 2% or whatever. Legal fees and fines are "costs". Obviously, much depends on the specific arrangement and the legal framework. Still, as an investor, wouldn't you rather just be safe and cash out, thus avoiding any possible complications? I mean the downside is really too unpleasant and probably not worth a few hundred bps a year. Anyways, that's just how I would think of it, personally.

Dec 9, 2010
Comment

Competition is a sin.

-John D. Rockefeller

Dec 9, 2010