Apr
14
Andrew Chen Blog Post #14
April 14, 2015 | Leave a Comment
In this day and age, it’s not uncommon to hear individuals taking unethical means to get ahead in life, especially within business. Such is the case with insider trading, where someone in the firm releases private information that is not available yet to the public to someone(s), and proceeds to get a benefit from the resulting leak.
In the statement by James A. Kidney, a former SEC Attorney, he goes over the standard insider trading trial. Previously, I had no idea that insider trading could go up five levels removed (or more), between the defendant and the insider. However, when the introduction brings up the fact that when a corporate insider gives non-public information to a trader, with the trader having no knowledge of the insider receiving any kind of personal benefit, and this would not count as insider trading crime, it makes me think about how frequent this can occur on Wall Street. Not only is it harder to prove in my opinion, but I agree with Kidney’s opinion of wasted effort on the “broken windows on the street level”.
As a successful SEC Attorney, Kidney finds pleasure in working backwards to find the tipper. He does feel that the Commission wastes too many resources on the small fish, the lower-level insider traders who are too removed from the firm. He feels it would be more efficient focusing on the higher up on Wall Street. Although the Commission seems to be blatantly ignoring the top dogs of Wall Street, Kidney is not. He knows what is going on, and is not excited to discuss the decision of the U.S. Court of Appeals in U.S. v. Newman. The prosecutor has to prove that the distant traders knew that the insider was getting a personal benefit from the transaction.
Because the situation had been that the prosecutors only needed to convince the jury that the defendant knew the information was nonpublic, and that it was coming from an insider source, this ruling made it a lot harder to even crack down on the “broken windows”, not including making enforcement of trading harder in general. It’s only ethical for insiders to not release nonpublic information to anyone for personal gain. With the bonuses and highly compensated salary that comes with the job already, how much money does one really need? There comes to a certain point where more money will not increase overall happiness, no matter what the individual says.
In other news, Wall Street’s court of appeals, also known as the Second Circuit, makes it impossible to retry those who got wealthy via insider trading. This is essentially the Second Circuit protecting the illegal occurrences of insider trading happening on Wall Street. Not only are investors hurt, but so are the numerous honest traders on Wall Street. This can lead to the issues of the fallacies with “trickle-down economics”, how no matter what, the rich just keep getting richer. And now they’re being protected.
