A question that you may or may not find interesting is: have the U.S. government’s rather strenuous recent efforts to stamp out insider trading actually reduced insider trading? How would you go about answering that, if you really wanted to know? I guess the right approach would be a survey; like, go email every hedge fund manager and ask “have you insider traded in the last 12 months? more or less than you used to?” and see what they say. That has … problems, so you look for proxies. Do stocks tend to go up, on heavy volume, before the announcement of secret good news? Then that at least suggests that someone traded on the secret good news before it was announced. It’s something.
A while back I idly committed some pseudoscience about pre-merger trading and found some indications that (1) stock prices and volumes tend to increase before mergers and (2) that increase has been more pronounced in say 2009-2013 than it was in say 2001-2008. This would seem to be weak evidence of increasing insider trading? This was a little puzzling given:
those strenuous efforts, lots of people going to jail for long periods, etc.; and
my assumption, anyway, that traders would be rational and competent judges of risk and reward who would weigh the increased odds of being caught and sent to prison in their decision to insider trade or not.1
But there my pseudoscience was. Anyway I learned today (via) about a recent study where some b-school professors committed some … I dunno, whatever b-school professors do, something between “pseudoscience” and “science” … of their own and got the opposite result, so I figured I’d pass it along. Here’s the abstract: Read more »
As some of you may recall, the day after Galleon Group founder Raj Rajartnam was indicted on insider trading charges, the Postdug up a rap song that had been recorded years earlier called “The Good Ship Galleon,” commissioned, of course, by party animal Raj. All we knew at the time was that the artists featured in the ditty went by the names Jesse Jaymes and Cleveland D, but not why this happened or the creative process that went into producing the tune. Lucky for us, Wall Street memoirist and Galleon alum Turney Duff happens to be on a first name basis with Cleveland D because he is Cleveland D, as we find out in Chapter 8 of The Buy Side. Sayeth Mr D: Read more »
Over at the Post this afternoon you will find an excerpt from former trader and Galleon alum Turney Duff’s forthcoming memoir, The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess. Whether you read it as an actual non-fiction account of his time at Argus Partners circa summer 2002, the literary pretensions of a financial services employee who thinks he’s the next Jay Mcinerney, or an unintentionally hilarious piece of performance art, we can say confidently it will be the best thing you’ll read today! The highlights, as determined by us: Read more »
Remember David Slaine? For those who need a refresher, he is the former Morgan Stanley managing director and ex-Galleon trader who began working as an FBI informant in 2007 and who was outed for doing so by the Wall Street Journalin January 2010. At the time, we learned a few notable things about Slaine, some of them germane to his role in helping the government go after people trading on material non-public information, others special in their own way, like:
1. He takes french fries, and perhaps all snacks, very seriously.
In 1993, Slaine triggered a fist-fight with a colleague on the trading floor after needling him because he wouldn’t share his french fries. Others broke up the fight.
2. He doesn’t wait for people to towel off and get dressed before knocking their teeth out.
One morning early in 2001, before trading began, Gary Rosenbach, then was the No. 2 executive under Mr. Rajaratnam, and Slaine were in a steam room together after exercising at an Equinox Fitness Club. Mr. Rosenbach was pressuring Mr. Slaine to improve his performance. As Mr. Rosenbach lay on his back on a bench, Mr. Slaine punched him, giving him a black eye and ending their friendship.
3. Humans aren’t the only ones often asked “you want a piece of me?”
He once smashed a computer keyboard in a fit of rage, says a person familiar with the incident.
4. While working on Wall Street, he eschewed the traditional channels of employee recruitment (Wharton, etc), preferring instead to pick up fresh analysts at the club.
While at Morgan Stanley, he met [Craig] Drimal, then a nightclub bouncer at the Vertical Club in Manhattan. The two quickly formed a friendship based on a shared passion for weight lifting and their mutual ability to bench-press 400 pounds…Shortly after arriving at Galleon, Mr. Slaine persuaded Galleon officials to give a position to Mr. Drimal, who then was working as a bouncer at the Roxy nightclub in Manhattan.
5. Being a person with whom he “formed a friendship based on a shared passion for weight lifting and [a] mutual ability to bench-press 400 pounds,” possibly the greatest line written about anyone who’s ever worked on Wall Street and which which cannot be said enough, means little in the long run if he knows you’ve been playing it fast and loose with securites laws.
In July 2007, the FBI showed up at Mr. Slaine’s door on W. 57th Street in Manhattan and confronted him. Mr. Slaine agreed to help the government. At the time, federal prosecutors in Manhattan were trying to make headway on another investigation that eventually led to the charges involving Galleon. They asked Mr. Slaine who he knew that might be participating in insider trading. Mr. Slaine’s answer: his friend Mr. Drimal, according to people familiar with the matter. In September 2007, Mr. Slaine—identified in the complaint as CS-1—tried out his body wire for the first time, meeting Mr. Drimal in New York. During the meeting, Mr. Drimal gave Mr. Slaine a piece of paper with four stock symbols, according to the complaint. He told Mr. Slaine the four companies were all acquisition targets. At the meeting’s end, Mr. Drimal told Mr. Slaine to destroy the list. He warned him to “be careful” in trading the securities because no news of the takeovers had surfaced publicly…After the meeting, Mr. Slaine went to a nearby hotel where an FBI agent was waiting, says a person familiar with the matter. The pair went to a room where Mr. Slaine removed the wire.
Anyway, Bloomberg recently checked in to see what Slaine’s been up to these last couple years and other than his “experience” with the FBI being “tremendously traumatic,” he seems to be doing pretty well. Read more »
On October 13, Judge Richard Holwell will pass down a sentence for convicted insider trader, Raj Rajaratnam. If the prosecution has its way, the Galleon Group founder will go away for twenty-four years. Obviously, the defense would prefer a little less time and in August, following Raj’s brother’s unsuccessful appeal for people to send character letters to the judge asking for lenience, turned to Plan B: breaking the news that Raj is suffering from a disease the likes of which you can’t even imagine, noting in a court filing that he will die from “unique constellation of ailments ravaging his body” if given anything even approaching twenty years. This, clearly, was well-played. Read more »
You might think – particularly if you’re a certain hedge fund manager counting down the days to a September sentencing – that Rajat Gupta did pretty well by not being prosecuted criminally (yet!) for allegedly passing inside information to Galleon. All he’s got so far is an SEC administrative action looking for “disgorgement of ill-gotten gains” and other civil penalties – which, not great, but better than jail.
But then again, not great – and Gupta ran McKinsey so you’d better believe he’s looking for ways to optimize the process. First up: get out of SEC administrative “court” and into a real court. Read more »
It is implausible that every one of Rajaratnam’s sophisticated investors were in the dark. Yet the law says that, unlike the Madoff investors, they bear no responsibility for ignoring red flags. On the contrary: They are being rewarded for looking the other way…The phrase I find myself muttering a lot these days is: “There oughta be a law.”…The more I think about it, the more I’m convinced that there ought to be a law that says that if a fund manager’s “edge” is insider trading, his investors should have to pay a price, too. Maybe then, they’d be less willing to look the other way when their fund manager starts doing things he shouldn’t. [NYT]
Earlier today, US prosecutors rested their case against former Galleon employee Zvi Goffer, who like his old boss Raj, has been accused of insider trading. Here’s what Assistant U.S. Attorney Richard Tarlowe had to tell the jury:
Tarlowe urged the jury to consider why the three men used prepaid phones that they subsequently destroyed, why Zvi Goffer spoke on recordings about creating what he called a “divergence” that would conceal the reason for trades, why Zvi Goffer referred on recordings to “our guy,” and why he and Kimelman spoke so often about the legal documents that prosecutors say were used in deals that Ropes & Gray worked on. “Think about why they were doing things like that,” Tarlowe told jurors. “The defendants are guilty as charged.”
And here’s what Goffer’s lawyer had to say about all that: Read more »