Insider Trading and the SEC

An article in todays Wall Street Journal describes the SEC investigation of some firms allegedly trading on "illegally shared confidential information". Apparently unscrupulous Hedge Fund guys were meeting with Industry mucky mucks over some drinks and wouldn't you know it, faster than you can say In Vino Veritas, coming away with information that allowed them to trade ahead of the herd. This sort of thing gets the now re-invigorated SEC's knickers in a twist. Led by their hard charging new director Mary Schapiro they are swooping in to stop a few super rich guys from adding to their coffers at the expense of a few other super rich guys. No doubt millions of dollars are being spend, literally on a daily basis, to facilitate this investigation.

I enjoy seeing some guy in a $1500 Suit being perp walked into the Manhattan County Courthouse as much as the next guy. This brief moment of joy however is nearly always followed shortly thereafter by the same guy walking out surrounded by a bevy of other guys wearing $1500 suits, known as the Counsel for the Defense. Much bombast is associated with the arrests and nearly none when the wrist slapping fines are levied. Normally the lawyer fees exceed the fines for the accused.

I am going to do the SEC a favor today and point out that for every drunken executive who slurred some info about an upcoming 9 digit merger there are 5000 RIDICULOUSLY ANOMALOUS OPTIONS TRADES AHEAD OF EVERY DAMNED EARNINGS REPORT. Hello McFly err... Ms. Schapiro, maybe you want to check this out? Every trader out there has gotten burned by this type of nonsense if they've been in the business through a quarter or two. It's an industry joke, affects a huge number of participants in the market and grossly detracts from the reputation of the market. The SEC and other regulating bodies including Ms. Schapiro's former employer FINRA can be part of the solution to this problem or they can remain part of the joke. If I had a dime for every time I said, or heard some other trader say, "somebody knew something", as we noted that 20,000 out of the money options contracts were traded a couple days ahead of a big move in the underlying stock, I would have a few of those $1500 suits.

I wish to further point out that we as citizens would be better served if we took a break from $10 million investigations resulting in $2 million fines and got a $70 subscription to a data service and put some effort into stopping the stuff that actually matters.


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