Do This And You Will Go To Jail

Published in Investing on 19 October 2009

Insider trading is seemingly rampant. It is not a victimless crime. Let's stamp it out now.

I'm always pleasing when criminals are caught. 99% of people are law-abiding citizens. It's the few crooks that spoil it for the rest of us.

For example, why do we install expensive security systems in our homes? Why do we pay high premiums for home contents insurance? Why do we lock all our doors and windows when we leave home to go to work?

Why do we have a sense of relief when we return from a two-week holiday and find our house has not been broken into? And why do people keep stealing my bicycles?

We've got those few crooks to blame. Wouldn't society be so much more a nicer place if crooks didn't exist?

Nasty People

It's wishful thinking, unfortunately. Nasty, inconsiderate, vindictive, violent and selfish people are part and parcel of society. I wish they would disappear, but unfortunately that's not going to happen.

The same goes for white collar crooks. These people have just as much disregard for the law as do the petty criminals who blight our communities.

Detention For 150 Years

The world of high finance has its fair share of crims. Bernie Madoff, purveyor of one giant ponzi scheme, is the highest profile undesirable of recent times. For relieving thousands of upstanding, respected citizens of their life savings and their mental health, he is currently spending 150 years in a USA penitentiary.

Those Americans know how to hand out a good prison sentence!

So it was with great interest I read about the arrest of US billionaire hedge fund manager Raj Rajaratnam and five other people on charges of insider trading. (Rajaratnam was identified this year by Forbes as the 559th richest person in the world, with a net worth of $1.3 billion.) 

These people are alleged to have profited from insider trading to the tune of $20 million. Of course, only a court of law will determine their innocence of not. Still, from what the prosecution have released to date, through phone tapping, it seems they have strong evidence of some serious wrong-doing.

Radio Silence

According to the FT, here are the contents of some of the phone tapes…

"On Akamai or IBM, anything, be radio silent..."

"I swear to you in front of God…You put me in jail if you talk."

"I'm dead if this leaks. I really am…and my career is over."

I've got news for these people. If found guilty, not only will their careers be over, but they will likely endure a long period of incarceration to contemplate their disregard of the law.

How To End Your Life In Prison

Reports say Rajaratnam, 52, faces 13 fraud and conspiracy counts, many of which carry 20-year maximum sentences. He may not be staring at a Madoff-like 150 years, but just two non-concurrent maximum sentences would likely see his life end in prison.

These charges should send a strong message to inside traders. It is not a victimless crime. For the $20 million allegedly profited, other investors lost that same amount. These crimes deserve long jail sentences, both to punish the perpetrators, but also to deter would-be no-gooders.

Insider Trading In The UK

Insider trading is still going on today, and looks to be happening here in the UK. A simple search of recent trading statements shows just how frequently it appears to be happening…

23 September 2009

"The Board of Litcomp (LSE: LIN) notes the recent rise in the Company's share price and announces that the Company is in advanced discussions with a potential offeror regarding a possible offer for the Company at 33 pence per share in cash."

23 September 2009

"Provexis (LSE: PXS) notes the recent share price movement and announces that it is in discussions with certain institutional investors and high net worth individuals regarding a potential subscription of new ordinary shares…"

22 September 2009

"The Board of Sinclair Pharma (LSE: SPH) notes the recent movement in the Company's share price and announces that it is currently in discussions about a potential significant product acquisition."

In all the above cases, the share price had moved before the announcement to the stock exchange. Insider trading? Let us know in the comment boxes below how this could not be…

Stamp Out Insider Trading Now

Insider trading is a blight on the investment landscape. To level the playing field for us all, especially for private investors like you and I, we need more action. 

Sending guilty parties to prison is a first step. Investigating statements like the above is another. Announcing a major crack-down on the despicable practise, complete with stiff penalties including life bans from the industry, is also required.

Insider trading must end. Stamp it out now.

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Comments

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Haddock100 20 Oct 2009 , 11:22am

Insider trading in London appears to be a way of life. It is quite astonishing how often a share will rise just ahead of a hitherto unexpected announcement. I have not analysed it but I would guess that a rise in price prior to an announcement is the norm rather than the exception so widespread is this. It has been going on for years. Take a look at the prosecution history to give you an indication of how well London regulates its markets. We,the private investor are the losers. The old Wall Street joke comes to mind.
A potential investor is visiting Wall Street and from the top of high building spots nice yachts in a marina. He is informed by his guide that these are brokers yachts. His enquiry as to where the investors yachts were are met with sniggers. Says it all I think.

2381nickp 20 Oct 2009 , 12:28pm

The headline should be 'Get caught doing this and you might go to gaol'.

Terrapin1 20 Oct 2009 , 12:42pm

FSA- facilitating special arrangements

UpHillAllTheWay 20 Oct 2009 , 5:59pm

There was an interesting comment on BBC-4's "The News Quiz" last week. It was given in jest, of course, but it didn't seem a bad idea to me! They suggested that a special team be employed specifically to infiltrate government and to try to trip up ministers. It would be generally known to all that these people were about, so that a minister would never know if the person offering him a free lunch in exchange for tabling questions (for example) was going to put the cuffs on him if he rose to the bait.
The scheme would lend itself equally well to stock market traders.

Esquilax100 20 Oct 2009 , 6:23pm

Interesting idea, UpHillAllTheWay ... basically a sting operation.

Much the same as publicising the use of 'bait cars' in public carparks.

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