Why Insider Trading Now?

The SEC is going after insider trading in a big way, apparently. After years of lower profile cases, suddenly the agency has gone big with some blockbuster cases, in parallel with the DoJ. First it was the Galleon Group three weeks ago, http://www.sec.gov/litigation/litreleases/2009/lr21255.htm, today it's the "Octopussy" case, http://www.sec.gov/news/press/2009/2009-236.htm. Has insider trading just become a sexy topic again? It seems so . . .

It's not as though insider trading was dormant for the last decade--on the contrary. However, it seems that the SEC and DoJ have beefed up resources to look for it now, in the wake of the financial crisis. According to Bloomberg, the government used wiretaps to develop its evidence in the Galleon probe. See http://www.bloomberg.com/apps/news?pid=20601087&sid=as8seXJpbDUY. Understandably, traders are concerned that the DoJ is in the process of unveiling yet another tool typically used in organized crime investigations against white collar types. However, it's also possible that the government originally obtained its wiretap authority in this case not because of insider trading suspicions but as part of a terrorist financing investigation. Discussing the Galleon investigation, the Wall Street Journal noted that Galleon's founder, Raj Rajaratnam, had "surfaced in an earlier, separate probe into U.S. fund raising by a Sri Lankan terrorist group." See http://online.wsj.com/article/SB125583082290592413.html?mod=rss_whats_news_us. That probe seems to have started around 2006 and lasted several years. Mr. Rajaratnam was never charged with knowingly funding a terrorist group (and according to his counsel that is because he never did--he was providing funds to help rebuild homes destroyed in the 2005 tsunami that devastated his native Sri Lanka). However, it may be that the roots of the Galleon insider trading investigation was a byproduct of the war on terror rather than a new war on Wall Street.

Today's "Octopussy" indictment by the DoJ and complaint filed by the SEC allege that several Wall Street lawyers and traders participated in an insider trading ring centered around Zvi Goffer, allegedly known as "the Octopussy" because of his reputation for having multiple sources of inside information. This might be viewed as evidence of mutiple different inside trading investigations except for one fact: Mr. Goffer is apparently a former Galleon trader. The two investigations may be linked. When the DoJ and SEC publicized their cases against Mr. Rajaratnam, they promised that there was more to come and the Octopussy case appears to be "more."

What to make of all this? There is no doubt that the SEC and DoJ have been handed marching orders by the administration and Congress: traders and executives in the financial markets are crooked, so go after them. It may not be possible to assess the blame for something as large as the economic crisis, but it is possible to ferret out people who have profited in one way or another from the markets. They weren't connected to the crisis, but they are red meat to politicians eager to place blame on Wall Street greed rather than political miscalculations. There are going to be more where these came from, presumably.

After its comeuppance before multiple Congressional committees over the Madoff scandal, the SEC has come to heel as well and been reminded of its own motto born from the ashes of the last major economic collapse. Investors appear to have their advocate back. Whether that advocacy will be tempered by judgment, only time will tell.

Inaugural Post

It begins. No blaring trumpets or ruffles and flourishes. Simple, straightforward.

Commentary haiku. Joycean stream of consciousness. Finnegan's Wake via keyboard and mouse. But is it art? Is it ever art when everyone can do it? Can it be art if I can do it? Who knows, or cares?

Here goes nothing . . .