Securities Law

SEC Sees 'Outrageous' Insider Trading

Professionals know insider trading is illegal, so one might think that they’re less likely to do it.

However, a surprising number of enforcement cases are being pursued right now that emanate from the ranks of some of the most sophisticated professionals around–Wall Street investment bankers and lawyers, writes Bloomberg in a special report today.

“One of the things that is particularly disturbing to me is the number of Wall Street professionals that are engaged in insider trading,” says Linda Thomsen, who directs the U.S. Securities and Exchange Commission’s enforcement division. “It is frankly outrageous.”

Since the spring of 2006, Bloomberg writes, the SEC’s insider-trading enforcement net has caught more than a dozen investment bankers, analysts and executives with a professional duty to safeguard confidential client information. “That’s a higher number of cases than during the entire decade of the 1990s,” the article states.

Authorities complain that many professionals are brazen about violating laws that prohibit those in the know from using confidential information to reap stock market profits. But professionals, on the other hand, also can use sophisticated knowledge of the system to conceal their insider-trading violations.

Comparatively unregulated markets, such as the trading of “swaps” contracts that guarantee repayment of corporate bond principal if the issuer defaults, offer greater opportunities for insider wrongdoing, notes Frank Partnoy, a former swaps trader who is now a law professor at the University of San Diego.

“Only a moron would engage in plain-vanilla insider trading,” he says. “If you’re smart, you do it under the radar.”

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