Ed. note: This is a new weekly column by Elie Mystal, Managing Editor of Above the Law Redline, wrapping up the week that was in law and finance. Elie is not a practicing attorney, and anything he says that you listen to can and will be used against you.
Issue #1: The $4.3 billion chat room.
The big news this week is that six firms will pay $4.3 billion to a suite of international regulators in the first set of punishments from rigging the foreign exchange market. Of course, it’s not at all clear that what Forex fixers did was that big of a deal. The Financial Conduct Authority in the U.K. says that “[t]he traders put their own interest ahead of their customers, they manipulated the market — or attempted to manipulate the market — and abused the trust of the public.” That’s lawyer-speak for “that’s not fair.” The fines amount to a $4.3 billion “unsportsmanlike conduct” penalty.
Okay, so Daniel Gallagher, Michael Piwowar, Nino and his sidekick all seem to agree that insider-trading is, in fact, a crime. But what sort of crime? The SEC’s two Republicans think that it may sort of be a victimless crime, insofar as it isn’t always possible to figure out who the victims are, and insofar as the SEC staff worked way too hard convincing Steve Cohen to give it $602 million to go away to have it all go to some scummy plaintiffs’ lawyers. Read more »
I haven’t been following the Doug Whitman case that closely but I got the vague impression that he wasn’t that guilty. Like, he did his research and thought it was his job to dig up information about public companies, he sought “color” rather than clearly-material hard numbers from executives, and he thought that when insider-trading-trial-Zelig Roomy Khan was saying things like “I am giving you illegal inside information” it was all a big joke, presumably of the you had to be there variety. That all sounds plausible-ish to me, though maybe not much more than that.
Anyway a jury disagreed and now he “faces a maximum possible sentence of 50 years in prison, though he is expected to receive far less than that,” and so I guess it’s time to fire up the old Insider Trading Sentencing Machine and see how much. He seems to have made “over $900,000,” he worked for a hedge fund, and he went to trial, which is all the machine needs to spit out its verdict.*
Which is a sort of frustrating fact about the machine. (And, of course, the actual sentencing regime it represents. The machine faithfully replicates the world, or has so far, more or less.) Here is how you – I, anyway – sort of want it to work:
The axes being (x) amount of money involved, (y) how guilty you are, and (z) how many years you spend in jail. Just going around being like “let’s insider trade, it’s awesome, later we’ll throw hard drives in dumpsters” should get you more time than looking for “color” from tipsters with no duty of confidentiality and occasionally semi-honestly getting, um, vivid lifelike color from tipsters with such duties. Sadly the way it works is more like this: Read more »
A Northern California hedge-fund manager was charged Friday with making more than $900,000 on trades in Google Inc. and other technology companies based on improper tips he allegedly received from a neighbor and a business associate. U.S. authorities alleged that Doug Whitman, of Whitman Capital in Menlo Park, Calif., shared information about other publicly traded companies or made payments in exchange for the tips. He also allegedly went so far as threatening to never speak to one co-conspirator if she wasn’t going to be a “slimeball” anymore, authorities said. [WSJ]