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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsHow Inside Traders Are Rigging America
12/17/14
Robert Reich
A few years ago, hedge fund Level Global Investors made $54 million selling Dell Computer stock based on insider information from a Dell employee. When charged with illegal insider trading, Global Investors' co-founder Anthony Chiasson claimed he didn't know where the tip came from.
Chiasson argued that few traders on Wall Street ever know where the inside tips they use come from because confidential information is, in his words, the "coin of the realm in securities markets."
Last week the United States Court of Appeals for the Second Circuit, which oversees federal prosecutions of Wall Street, agreed. It overturned Chiasson's conviction, citing lack of evidence Chiasson received the tip directly, or knew insiders were leaking confidential information in exchange for some personal benefit.
The Securities and Exchange Act of 1934 banned insider trading but left it up to the Securities and Exchange Commission and the courts to define it. Which they have - in recent decades so broadly that confidential information is indeed the coin of the realm.
If a CEO tells his golf buddy that his company is being taken over, and his buddy makes a killing on that information, no problem. If his buddy leaks the information to a hedge-fund manager like Chiasson, and doesn't tell Chiasson where it comes from, Chiasson can also use the information to make a bundle.
Major players on Wall Street have been making tons of money not because they're particularly clever but because they happen to be in the realm where a lot of coins come their way.
Last year, the top twenty-five hedge fund managers took home, on average, almost one billion dollars each. Even run-of-the-mill portfolio managers at large hedge funds averaged $2.2 million each.
...CEOs and other top executives, whose compensation includes piles of company stock, routinely use their own inside knowledge of when their companies will buy back large numbers of shares of stock from the public - thereby pumping up share prices -- in order to time their own personal stock transactions.
That didn't used to be legal. Until 1981, the Securities and Exchange Commission required companies to publicly disclose the amount and timing of their buybacks. But Ronald Reagan's SEC removed these restrictions.
Then George W. Bush's SEC allowed top executives, even though technically company "insiders" with knowledge of the timing of their company's stock buybacks, to quietly cash in their stock options without public disclosure.
But now it's normal practice. According to research by Professor William Lazonick of the University of Massachusetts, between 2003 and 2012 the chief executives of the ten companies that repurchased the most stock (totaling $859 billion) received 58 percent of their total pay in stock options or stock awards.
In other words, many CEOs are making vast fortunes not because they're good at managing their corporations but because they're good at using insider information. It's the coin of their realm, too.
http://www.huffingtonpost.com/robert-reich/the-coin-of-the-realm-how_b_6343866.html
We still technically have the SEC that FDR created, but I don't think the modern version is what he intended.
Historic NY
(37,449 posts)B Calm
(28,762 posts)the ego's of republican congressmen.
RiverLover
(7,830 posts)Major Nikon
(36,827 posts)She went because she lied to investigators.
http://en.wikipedia.org/wiki/Martha_Stewart#Sentence
nichomachus
(12,754 posts)She went for letting the cat out of the bag. Insider trading is done in secret -- locker room or dinner table conversations out of the earshot of the public or just winks, nods, and frowns. Martha left a voicemail message. Rule #1 of insider trading is that you pretend it doesn't exist. You don't leave voicemails.
It's just like Leona Helmsley. She went to jail for letting the cat out of the bag. She told her maid that rich people don't pay taxes. If you're in the club, you are supposed to pretend that you are dying from too much taxation and that you'll never survive if the government doesn't cut your taxes even more.
KingCharlemagne
(7,908 posts)revelations will affect me much, save at the inconsequential margins.
But what people need to understand is that for every trader who gains as a result of access to inside information, some other person or persons lose(s). For workers with retirement assets in 401-Ks or IRAs that invest in stocks through mutual funds, exchange-traded funds (ETFs) or even individual shares of stock, such insider trading can have an adverse effect on their retirements down the road. So insider trading is NOT a victimless crime.
Don't know enough about financial matters to advise workers on how to take cover. Certainly, keeping at least a percentage of their retirement funds in government bonds and money market funds will shield them from the adverse consequences of this total, utter shit. (ETA: I think it was Trotsky who popularized the notion that fascism is the decayed version of capitalism; if this tacit acceptance of insider trading doesn't constitute direct evidence that capitalism is in decay, I don't know what else would.)
RiverLover
(7,830 posts)AwakeAtLast
(14,130 posts)I hope this is something President Obama can change without Congress.
Cryptoad
(8,254 posts)Economic Liberty was redefined as an Unalienable Right for the Super Rich to own it all!
Oilwellian
(12,647 posts)onethatcares
(16,169 posts)and I'm just a carpenter. That the American economic system is based on fraud and screwing the working poor.
Live and Learn
(12,769 posts)rickford66
(5,524 posts)sendero
(28,552 posts)... that is pretty much all it is about.
KansDem
(28,498 posts)...then run to their offices to call their brokers and instruct them about what investments to make based on the impending legislation.
Yeah, it's a rigged system...
marmar
(77,081 posts)nichomachus
(12,754 posts)The real damage is done by trading supercomputers. They see available trade seconds before you or I would see them. The, in nanoseconds, they can buy or sell, or even buy and sell.
Example, I want to buy Stock X for $100. You want to sell it for $99. The computer sees that. It buys it from you for $99 and sells it to me for $100, making a dollar per share. It doesn't sound like much, but it depends on the number of shares and can add up with hundreds of thousands of trades a day. Also, these outfits pay no commissions as you or I do. They scoop up hundreds of millions of dollars with no effort at all -- and it all comes out of our pockets.
90-percent
(6,829 posts)One for the wealthy elite and a separate but equal one for the bottom 99%.
The most galliing recent example is about laws for insider trading by members of Congress - here's my understanding;
In recent times, it has been perfectly legal for members of Congress to practice INSIDER TRADING - buying stocks based on info only a Congressman would have.
There was a time in recent years where Congress outlawed this and was forced to comply with the same regs as everybody else.
HOWEVER, didn't they recenlty quietly overturn that law, and make things back to the way the originally were, where if we were to get caught insider trading, we would be arrested and tried for breaking the law, but its legal for member of Congress to do what would get the rest of us in jail for?
Is this not the height of brazen arrogance and hypocracy?
-90% Jimmy
RiverLover
(7,830 posts)It is indeed the 2nd Guilded Age.
Corruption & greed are running the show in favor of the wealthy & to the detriment of the rest of US.
Bastards.