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Illegal insider trading: a history
Illegal insider trading started a long time ago. But it has become more interesting in recent years.
By Scott Cohn
How long has there been insider trading? Pretty much as long as there's been trading.
The earliest recorded insider-trading scandal on Wall Street: 1790, when a former Treasury Department official used his inside knowledge to trade bank stocks.
But in recent years it has gotten more interesting.
There was the investment bank CEO convicted of passing inside tips to his porn-star girlfriend. Add to that the financial printer who just happened to read the tender offers he was printing. And there was the short seller who was allegedly so good at spotting companies that were under investigation because he had friends at the FBI.
Say what you will about insider traders, they sure are creative.
Widening the net
R. Foster Winans, who wrote the "Heard on the Street" column for The Wall Street Journal, was charged in 1984 with giving advance notice of his columns to a broker. That inside information wasn't Winans' to give.
The case was one of the earliest brought under a theory that attorney Ira Sorkin helped develop in the '70s when he was a federal prosecutor in New York.
"You don't have to be an officer, you don't have to be a director," says Sorkin. "That has resulted in convictions against lawyers, accountants, taxicab drivers, librarians, public relations people, psychiatrists and a variety of people having nothing to do with the company."
And no one put the theory to more use than a little-known U.S. attorney in New York.
Former New York Mayor Rudy Giuliani made a name for himself in the '80s prosecuting insider-trading cases, raiding Wall Street trading rooms and dragging out brokers in handcuffs.
Gone fishin'
He also snagged the biggest insider-trading fish of all, Ivan Boesky, who had made billions from inside tips about upcoming takeovers. Boesky in turn fingered junk bond king Michael Milken and both went to prison.
Today, questions about insider trading are back. Even Martha Stewart is being forced to answer them. The issues, says Sorkin, are the very same ones as those in the high profile insider trading cases in the '80s.
"The essence of this is to give everyone access to the information, and let them decide if it is something that they want to trade on or not trade on, but at least the information is out there," he says.
But for some, that was just too boring. In the search for an edge, they went over the edge.
Is insider trading making a comeback with all the cases in the news? The SEC says it has no evidence of a sudden increase in insider-trading cases. But when the market drops and so many people lose money, the few people who win get extra scrutiny. |
