Apr
14
Class 20 – Insider Trading // Sheena Chin
April 14, 2015 | Leave a Comment
It is without a doubt that when we discuss corruption on Wall Street, insider trading is one of the most heavily guarded topics. Insider trading, as defined, usually occurs in the most standard scenario when a corporate insider gives non-public information to a trader in exchange for rewards which include but are not limited to cash, material rewards, and even a leg up on a future career prospect. It is no surprise to me to learn that insider trading occurs from time to time, given my less-than-optimistic view on those bankers on Wall Street. When you have the means to become Vice President of a firm in 5 years instead of 10, why not give in?
In the Wall Street On Parade article that featured guest columnist James Kidney who served on trials for the SEC for 25 years, he had a really interesting take on the whole inside trading issue. I thought it was funny when he related back to his insider trading cases and described them to be fun to solve and then comparing it to a game of Clue. While he was able to win many insider trading cases, he says: “I wish I could say these victories achieved something important for securities enforcement. I doubt that they did. Those cases tried against other than true corporate insiders were largely a waste of government (and my) time.” In this quote, he voices his opinion that his work did not change anything, even though “justice for the SEC” prevailed. In his view, he thinks that the SEC spends far too many resources trying to find out who these low level insider traders are when these very people are too far removed from the corporate suit and carry zero impact on the market. I especially like his analogy of “broken windows” where he says that SEC is too busy policing “the broken windows on the street level” and ignoring those doing the real damage on the “penthouse floors.”
Another criticism for the SEC and the DOJ that Kidney brings up is how he sees that the Division of Enforcement should be going after the little insider trading guys who spread rumors about stocks IF they are doing something to moderate what is going on in the C-Suite, or those on the scarier end of the Wall Street food chain. Kidney observes that the SEC has habitually been known to shy away from bringing to light colorable fraud actions against the senior insiders of the big banks who all may have caused the 2008 financial crisis. As this is my first time hearing about this, it is very shocking to learn that the SEC’s Division of Enforcement does not lay down a bigger hammer so to speak, when the more higher up Wall Street men make a play with their power. While James Kidney writes a narrative from his experience in dealing with the little guys in insider trading, he most importantly writes an exposé on the corruptness of the SEC and Wall Street.
However, in the article from New Economic Perspectives, Black argues against New York’s Second Circuit’s decision that makes it impossible to retry the elite Wall Street defendants who grew wealthy through trading on insider information. Basically, this decision acts like a roadmap that every corrupt Wall Street elite can follow to trade on insider information with total impunity. This ruling also establishes a financial version of the “don’t ask; don’t tell” defense during insider trading prosecutions where elites can use their juniors to deny any responsibility. Black also states that the real victims are the investors who he views as the “crippled integrity of Wall Street” and the very few honest traders on Wall Street who can no longer compete with cheating rivals. From the Second Circuit’s ruling, Black views that it has completely undermined the integrity of Wall Street, which I somewhat agree with. I believe that Wall Street has always been, and will always be tainted with corruptness, so while I admire how passionate Black is about insider trading, I am hesitant to to completely agree with his viewpoints.
From these two opposing articles, I find truths in both exposés regarding insider trading on Wall Street. In the first article, James Kidney focuses on the larger picture and puts the problem of insider trading on the Wall Street map. I agree with him when he states that while insider trading is a problem under the responsibility of the SEC, there are bigger and more damaging problems to put under the microscope that the SEC is not yet already doing. Regarding Black’s article, I agree with him that he views insider trading and specifically the Second Circuit’s decision as a large metastatic tumor on the heart of Wall Street, I am skeptical to believe all of his accusing convictions.
