STEVE INSKEEP, host:
Here's another kind of record. Some people say insider trading is almost as bad as it was during the 1980s - big bull market then. A booming stock market creates plenty of opportunities for mischief and that is confirmed by the Securities and Exchange Commission, the body that governs the markets, which says insider trading is on the rise.
NPR's Jack Speer takes a look.
JACK SPEER: On a typical trading day, more than a billion shares change hands on the New York Stock Exchange, which you might think would make it pretty tough to identify who's playing by the rules and who isn't. But the NYSC has ways of ferreting out suspicious-looking trades. On the 10th floor of the stock exchange, Bruce Dubner(ph) spends his days monitoring a blue computer screen looking for anything unusual. For example, a company whose shares rise or fall sharply without an obvious explanation.
Mr. BRUCE DUBNER (Stock Watch Unit, New York Stock Exchange): We have different levels. You could see, there's range one, two, three, color-coded, orange of course being the most severe; then there's the C-code, which is the most severe.
SPEER: Dubner is part of the NYSC's stock watch unit, 160 people whose job it is to protect investors by preventing fraud. Robert Marchman is the director of the exchange's enforcement division.
Mr. ROBERT MARCHMAN (Director, Enforcement Division, New York Stock Exchange): There's a number of tools that we have at our disposal that we try to use, but not surprisingly in a bull market you're seeing more activity. And right now we're experiencing a bull market in mergers and acquisitions, so consequently our activity is up and we're seeing more which could be potentially insider trading.
SPEER: It's not Marchman's job to determine whether illegal trading has occurred; that's up to the Securities and Exchange Commission, the government's main securities watchdog group. Walter Ricciardi is a deputy director with the SEC's enforcement division, who says once alerted to suspicious activity by the NYSC, his investigators then try to make connections.
Ms. WALTER RICCIARDI (Deputy Director, Enforcement Division, SEC): Very often they require piecing together like a complicated puzzle - a lot of relationships between people; and pieces of evidence, whether electronic emails, telephone records; in some cases they use disposable phones to avoid detection; and they don't trade in their own name, they trade through to a relative. All kinds of different ways to try to cover their tracks.
SPEER: Ricciardi mentions a recent case involving an employee at Credit Suisse who used his cell phone to tip off a banker in Pakistan about nearly a dozen pending merger deals. The increasingly global nature of the financial markets complicates the SEC's task. There's more of an opportunity for information to leak out, and many countries have less stringent standards on what constitute insider trading. Peter Henning is a professor of law at Wayne State University and a noted white-collar crime expert. He says there's really no way for investigators to know exactly how much insider trading is going on.
Professor PETER HENNING (Law, Wayne State University): We're seeing more insider trading cases. I'm not sure whether there's more insider trading taking place. Certainly I would estimate a substantial percentage of the insider trading just isn't caught, or the SEC can't prosecute it.
SPEER: Henning says in a lot of instances the SEC just doesn't have the evidence it needs to make a solid case. The SEC, however, is doing what it can to send a message. It's recently brought cases against employees at a number of big banks and brokerage firms, the very people you think would know they're being watched. SEC Deputy Enforcement Director Walter Ricciardi has a theory about that.
Ms. RICCIARDI: I think the personalities of a lot of people on Wall Street are they're risk-takers, and they say, gee, upside millions, chance of getting caught, if they think it's small, their mental calculation, maybe I can take that risk, I may get away with it. And they may actually enjoy the thrill of engaging in this kind of misconduct. The same people probably take racecar lessons on the weekends and skydive.
SPEER: Ricciardi says the thrill of a big payday simply isn't worth the risk of getting hit with a large fine or loss of a job. And he points out the SEC has one other big stick to wield. It often works closely with the Justice Department, which has the power to put people in jail.
Jack Speer, NPR News, Washington.
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