'Illegal Insider Trading Is Rampant And May Even Be On The Rise' : Planet Money "And the people who are cheating the system include bad actors not only at Wall Street firms, but also at Main Street companies," says the U.S. attorney driving a major investigation.
NPR logo 'Illegal Insider Trading Is Rampant And May Even Be On The Rise'

'Illegal Insider Trading Is Rampant And May Even Be On The Rise'

The FBI raided three hedge funds today. It's part of an insider-trading investigation that "could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation," the WSJ reports.

One focus is companies that provide "expert networks" for hedge funds. These companies set up conversations between hedge funds and people who work in industries where the funds want to invest. The industry employees are often paid hundreds of dollars an hour to participate.

The expert network firms say (of course) that the experts they provide aren't allowed to disclose confidential information.

No charges have been filed in the case.

The investigation has been driven largely by Preet Bharara, the U.S. attorney for the Southern District of New York, the WSJ says.

Bharara called out insider trading in a speech last month -- and explained why modern finance makes insider trading so hard to prosecute:

Unfortunately, from what I can see from my vantage point as the U.S. Attorney here, illegal insider trading is rampant and may even be on the rise. And the people who are cheating the system include bad actors not only at Wall Street firms, but also at Main Street companies. ...

At the same time and for a host of reasons, the detection, investigation, and criminal prosecution of illegal insider trading has become increasingly difficult. It has perhaps never been more difficult to attack through traditional investigative means.

This is so for a number of reasons. Among other things, the sheer volume and complexity of modern stock trading heightens the difficulty of pinpointing specific illicit trades that were based on illegally acquired inside information.

When an institution or a trader can jump in and out of positions at the speed of light and in enormous volumes, illicit trades become easier to mask, harder to find, and subject to plausible deniability. ...

Moreover, in the modern information age, there has been a veritable explosion of newsletters, websites, blogs, tweets, and feeds publishing every last rumor and report of potential mergers and acquisitions and earnings reports.

That of course makes it easier for an accused insider trader to argue -- in the absence of incriminating recorded evidence to the contrary -- that any trades were based on some report somewhere, which may never have in fact been believed or even read.