“Fair and efficient markets depend, ultimately, on public information and honest dealings and enforced rules. And every cheater— whether he trades on inside information or manipulates the market or makes misrepresentations—cheats every other participant and offends the principles of the market that honest players live by and make their living on.
“Unlawful insider trading should…be offensive to everyone who believes in, and relies upon, the market. And it is an affront not only to the fairness of the market but also to the rule of law.”
“Now I am told there are some people who don’t see what all the fuss is about. Insider trading, they suggest, is not a particular scourge and is a poor pick as a priority for law enforcement. I know that no one in this room thinks that. (Perhaps that’s because you all have bills to pay.)”
The Government’s Ominous Warning Against Insider Trading
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By Shira Ovide
U.S. Attorney Preet Bharara last month gave a barn-burner speech, which presaged what could turn out to be the biggest insider trading case in years, involving a wide range of hedge funds, bankers, mutual fund traders and others.
S. FELD/CLASSICSTOCK/Everett Collection
Bharara is on the front lines of the investigation, first reported by our Journal colleagues over the weekend. It is worth delving into Bharara’s speech to the New York City Bar Association, which forms the philosophical foundation of the insider trading case. In hindsight, the speech looks like a remarkable warning to financial bad apples.
Bharara told the audience – a group full of white-collar lawyers and others — that he believed “illegal insider trading is rampant,” according to a copy of his prepared remarks. “And the people who are cheating the system include bad actors not only at Wall Street firms, but also at Main Street companies.”
(Click here to watch a video of Bharara’s Bar Association speech.)
He also said it is becoming harder to detect and bring criminal cases against insider trading, in part because the rising complexity of financial markets makes it difficult to pinpoint particular trades that resulted from illegal inside tips, and because there is an explosion of news, tweets and websites pushing into the public realm rumors and private information about deals.
But Bharara was crystal clear that he believed insider trading was not only widespread but also eroding the sanctity of the financial system:
“Fair and efficient markets depend, ultimately, on public information and honest dealings and enforced rules. And every cheater— whether he trades on inside information or manipulates the market or makes misrepresentations—cheats every other participant and offends the principles of the market that honest players live by and make their living on.
“Unlawful insider trading should…be offensive to everyone who believes in, and relies upon, the market. And it is an affront not only to the fairness of the market but also to the rule of law.”
“Now I am told there are some people who don’t see what all the fuss is about. Insider trading, they suggest, is not a particular scourge and is a poor pick as a priority for law enforcement. I know that no one in this room thinks that. (Perhaps that’s because you all have bills to pay.)”
Bharara said his office was “committed to using every lawful investigative tool available to investigate and prosecute insider trading offenses” – a nod to the Galleon Group insider trading case. Galleon founder Raj Rajaratnam has challenged the legality of the government’s use of wiretaps to gain information in insider-trading cases. “Recordings are the absolute best evidence, and so we will not shrink from using them,” Bharara said.
The U.S. Attorney ended his remarks by addressing the lawyers in the room, in what sounded like part good-natured plea and part warning.
“Increasingly, you and your clients are in the best position to witness fraud and malfeasance on the part of others,” he said. “And so the truly great lawyer – motivated by conscience, guided by principle, and empowered by training – can serve as the greatest antidote against a creeping corporate corruption that has so sapped people’s faith in our economic order.”
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