Yahoo Finance/Reuters Guide To Successful Insider Trading, Part I

8 Apr

Ethics, they don’t haz it.

Here’s some advice for anyone hoping not to get caught in an insider trading web: Shut up.

After the October 2009 arrest of Galleon Group hedge fund founder Raj Rajaratnam, who was wiretapped by the FBI, the world woke to a new era of prosecutorial tactics in insider trading probes.

For those considering crossing the line, the changes may make insider trading seem a vocation not worth the risk.

Emails and other forms of electronic communication can be traced. Destroying old-fashioned snail mail or hard drives will not work if the government gets a tip it is being done.

And don’t talk to people. There is no certainty that what is said will remain private. Indeed, recent phone recordings make some accused wrongdoers come across as Keystone Kriminals.

If I remember correctly, the first week (if not first day) of Analyst training at my first i-banking job when I was 22, we were told the same thing I thought everyone else who worked on Wall Street was told “Don’t write or say anything you wouldn’t want to see on the front page of the WSJ.

Apparently, this maxim is not nearly as wide-spread as I thought, or, perhaps, people severely discount not just the probability of such an outcome, but the magnitude of negative sentiment that comes along with it.

Look, there has, is, and always be some sort of sharing of possibly non-public information amongst friends and colleagues, its simple human nature and there’s really little means of stopping it, which really isn’t as bad as it sounds (ed: THIS IS NEITHER LEGAL ADVICE NOR COMMENTARY, see SEC page).  All I’m saying is if two friends are at a bar chatting about work, it really doesn’t hurt investors if one friend is a banker and talks about some pain in the ass energy deal he’s working on (w/out giving specific details), and the other is in credit derivatives sales and talks about how a bunch of funds have been expressing interest in some new structure/trade they came up with.  Again, not legal advice, just personal opinion.

All that aside, I find this article from Reuters/Yahoo pretty funny, since I’m 100% sure there’s some moron soon-to-be-convicted insider-traders reading it thinking “hey, these guys were morons, if we shut up like they say in this article, we’ll totally get away with !”

The best way to not get busted for insider trading is to not trade on material non-public information, plain and simple.  If you’re the least-bit hesitant about trading because you’re not sure you have MNPI, play it safe and don’t make the trade.  It’s that simple.  Don’t even bother tempting the law, let alone breaking it, unless you’re prepared to deal with ALL of the consequences of your actions.


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