Questions are now rising whether insider trading is now more of a problem following the arrest of a Credit Suisse Group banker on charges of illegally leaking confidential information on nine deals, including the $45 billion buyout of the Texas energy giant TXU.
Investigators are now looking at unusual trading in Dow Jones stock and options before it announced a takeover bid by News Corp, according to news reports.
And earlier this year, the Securities and Exchange Commission announced that it had nabbed 14 defendants in an insider trading scheme that made profits of more more than $15 million from thousands of trades. The list included a UBS research executive, an attorney who was at the time with Morgan Stanley, two broker-dealers, and three hedge funds.
Experts are saying there are now more opportunities for it because of technology and the growth of global markets.
"In the old days, it would be word of mouth, hard-line telephones. These days with BlackBerries, cell phones, much more access internationally, you have the potential for this, " George Stamboulidis, head of the the white-collar crime and corporate investigations practice at law firm Baker Hostetler, told Reuters.
Insider trading is "back with a vengeance" says The Wall Street Journal.
According to the WSJ, the SEC has boosted its hedge-fund working group in New York to coordinate investigations nationwide, including a focus on insider trading. And it's targeted more than one brokerage firm. The simple fact is that the soaring merger market, the rise of lightlyhedge funds and increased use of complex trading strategies, such as credit default swaps, are providing new more opportunities and new methods for would-be insider traders. Combine that with new communications technologies and global markets, and you have a lethal mix.
There might be more opportunities but the fact is insider trading has always been a problem. The whole business of stockbroking and servicing clients is based on providing an edge, and there are various shades on whether that information is public or not. Sometimes the information is based on rumor and innuendo, and sometimes people don't know whether it is privileged.
Fund managers have told me that a lot of the leaks come from boards. "From my experience, a lot of the information leaks from the board,'' one fund manager told me. "That's the biggest source of leakage, and in many instances, they don't even do it for their own gain. They will tell someone something for whatever reason, it might be down at the club or after some drinks, and nine times out of 10, it's not coming for any advantage to themselves. These days, people aren't stupid enough to trade on the information themselves."
Is insider trading back with a vengeance? Actually, it never went away. It's just that there now seem to be other ways of doing it, and more opportunities.