Preet Bharara, our newest hero and the United States Attorney for the Southern District of New York, hinted a month ago that many new cases will be brought against several financial market participants. {We’re sure this is going to happen} He emphasized the investigation and prosecution of illegal insider trading has been, and will remain, a top criminal priority for his Office, the FBI, and the SEC. He said that since insider trading is difficult to prove, they would be using every lawful investigative tool available, including wiretaps, to investigate and prosecute insider trading offenses.
Here are what we consider the top 10 points he’s made about illegal insider trading:
1. Many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged, and wealthy insiders in modern finance.
2. Every illegal insider trader cheats every other participant and offends the principles of the market that honest players live by and make their living on.
3. Illegal insider trading exacerbates the pervasive crisis of confidence in our financial system, what some see as a lack of faith in the economic order and a lack of trust that the same rules apply to everyone.
4.Illegal insider trading is rampant and may even be on the rise.
5. The people who are cheating the system include bad actors not only at Wall Street firms, but also at Main Street companies.
6. Insider trading involving a tipper and a tippee is both a theft and a fraud.
7. For illegal insider traders, material non-public information is akin to a performance-enhancing drug that provides the illegal “edge” to outpace their rivals and make even more money… Inside information is a form of financial steroid; it’s unfair, offensive, unlawful and it puts a black mark on the entire enterprise.
8. The detection, investigation, and criminal prosecution of illegal insider trading has become increasingly difficult…The sheer volume and complexity of modern stock trading heightens the difficulty of pinpointing specific illicit trades that were based on illegally acquired inside information…When an institution or a trader can jump in and out of positions at the speed of light and in enormous volumes, illicit trades become easier to mask, harder to find, and subject to plausible deniability.”
9. “In the modern information age, there has been a veritable explosion of newsletters, websites, blogs, tweets, and feeds publishing every last rumor and report of potential mergers and acquisitions and earnings reports. That of course makes it easier for an accused insider trader to argue – in the absence of incriminating recorded evidence to the contrary – that any trades were based on some report somewhere, which may never have in fact been believed or even read.”
10. White collar crime is becoming increasingly global. But just as prosecutors have figured out how to make international terrorism cases and international narco-trafficking cases where the defendants and much of the evidence is abroad, they will be continuing efforts to do more of the same in our white collar cases.
In short, illegal insider trading is DIFFICULT to prove in courts beyond a reasonable doubt. The only way prosecutors can curtail illegal trading is by employing the same methods they employed to deal with organized crime. Hedge fund traders, investment bankers, and their tippers from Main Street companies will be treated the same way as was Tony Soprano.
