Wednesday, December 1, 2010
Let’s Talk Insider Trading
Preet Bharara has called insider trading “rampant” on Wall Street. It involves the disclosing of privileged information concerning publicly traded companies that is both non-public and material. Divulging such information could result in SEC sanctions or criminal prosecution.
The best defense against such public humiliation is to avoid the kinds of behavior that can bring such a public excoriation. It means leading a career that comports with the virtues of honesty, transparency, and integrity.
More and more business news stories, however, feature accounts of professionals who have lost sight of such values. And unfortunately, many of these professionals—like I once did—will be forced to learn their lesson from the wrong side of prison boundaries.
It wasn’t long ago that a federal grand jury brought a 23-count indictment against an assortment of bankers, lawyers, and traders associated with The Galleon Group. That indictment included the billionaire hedge fund trader Raj Rajaratnam. Fourteen of his associates have already pleaded guilty and many are cooperating with the federal investigators.
Some of the people associated with Galleon Group provided prosecutors with sufficient information that led to the arrest of Don Chu of Primary Global Research.
Dan Hurson of the Daniel J. Hurson Law Offices in Washington, DC told reporters “It probably could be the biggest insider scandal ever.”
A former SEC prosecutor and current partner at Shulman Rogers, Jacob Frenkel, said “The Chu arrest reflects the government’s willingness to pursue all participants in the insider trading scheme.” Mr. Frenkel predicted that Chu’s was the first of what would be many criminal indictments to come.
Individuals who begin the slippery slope away from a life of transparency can easily fall into the vise grip of the criminal justice system. By the time prosecutors become aware of wrongdoing, it’s only a matter of time before an individual who considered himself a law-abiding citizen becomes a criminal defendant. Consequences of legal fees that run into six figures—and sometimes require two commas to tally—soon follow. I know.
After that, it’s only a short while later before the strip searches in federal prison become the new reality. Avoiding such derailment is easiest for those who lead their careers (and their lives) with transparency. And it’s never too late to start.