SEC Brought Fewest Insider Trading Enforcement Cases In Decades In 2019 Kodak and Sen. Richard Burr, R-N.C., are facing high-profile insider trading investigations, but data show the Securities and Exchange Commission pursued far fewer insider trading cases last year.
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Under Trump, SEC Enforcement Of Insider Trading Dropped To Lowest Point In Decades

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Under Trump, SEC Enforcement Of Insider Trading Dropped To Lowest Point In Decades

Under Trump, SEC Enforcement Of Insider Trading Dropped To Lowest Point In Decades

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SARAH MCCAMMON, HOST:

Since the pandemic hit, financial markets have crashed and soared. That volatility has meant more opportunities for insider trading, using inside information to profit in the stock market, which is illegal. NPR has found the Trump administration has brought the fewest number of insider trading cases in decades. Here's NPR investigative correspondent Tom Dreisbach.

TOM DREISBACH, BYLINE: Think insider trading, maybe you think Martha Stewart...

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UNIDENTIFIED REPORTER #1: Martha Stewart was indicted on criminal charges relating to an insider trading scandal that began more than a year ago.

DREISBACH: ...Or the guy who inspired the phrase greed is good.

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UNIDENTIFIED REPORTER #2: Ivan Boesky, a leading Wall Street takeover specialist, agreed to pay a record $100 million penalty for insider trading abuses.

DREISBACH: Those were both big years for insider trading cases. 2019 was not. We looked at more than three decades of data from the Securities and Exchange Commission, the government's top financial cop. And last year, the SEC brought 32 insider trading cases, the fewest since 1996. Often more than one person is charged in each case, and in 2019, the SEC charged 46 defendants, the fewest since Ronald Reagan was president. In an average year, it usually charges double that number. So was Wall Street just more ethical last year?

BRANDON CLINE: That seems extremely unlikely.

DREISBACH: That's Brandon Cline. He's a finance professor at Mississippi State University. And he says in any given year, the government is actually just scratching the surface of illegal activity.

CLINE: They willfully admit that they only catch a very small portion of those that are engaging in illegal insider trading.

DREISBACH: The SEC is a lot bigger than it was in the 1980s or '90s, but there's never enough time to go after every bit of financial wrongdoing. Here's Doug Davison. He used to actually do this enforcement.

DOUG DAVISON: There's a lot of things going on. You got a certain amount of resources. You can't do every case.

DREISBACH: So it's all about choices. The Trump appointee that runs the SEC is Jay Clayton. Before entering government, he was a longtime corporate lawyer. Under Clayton's leadership, the SEC has focused on policing two areas, cyber misconduct and protecting Main Street investors from financial con artists. Here he is in 2017.

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JAY CLAYTON: As I say it when I walk the halls of the agency, how does what we propose to do affect the long-term interests of Mr. and Ms. 401(k)?

DREISBACH: And last year, the SEC brought a lot more cases going after shady investment advisers and returning money to victims who got defrauded. Despite a government shutdown, overall enforcement cases were up. But at the same time, there were fewer insider trading cases. Research has indicated that aggressive enforcement of those cases actually does deter insider trading. If a CEO sees someone like Martha Stewart get hauled to court, the theory goes, they might think twice.

Bartlett Naylor, an advocate with the left-leaning group Public Citizen, says the fact that the commission brought fewer cases sends a terrible message to Wall Street.

BARTLETT NAYLOR: That means they are not trying. That means they told the cops to go play canasta instead of do their job.

DREISBACH: The SEC itself acknowledges that market volatility during the pandemic can make insider trading more tempting. A big announcement about, say, a vaccine or a government loan can dramatically change a company's fortunes. Urska Velikonja of Georgetown University says that when people get away with insider trading, it underscores a sense that the stock market is just for the well-connected.

URSKA VELIKONJA: It does, you know, have the potential to unsettle political systems as well in the long run.

DREISBACH: Because it just feels fundamentally unfair.

VELIKONJA: Because it's just - this is fundamentally unfair. It's all rigged. Burn the house down, and start from scratch.

DREISBACH: We still don't have final numbers for how much enforcement the SEC has done this year. In a statement, a spokesperson said vigorous insider trading enforcement remains a core component of the commission's work. But they did not address the overall drop in numbers. We know it is currently investigating Kodak, as well as U.S. Sen. Richard Burr of North Carolina. Both have denied wrongdoing. Those investigations can take a long time. So far, no charges have been filed. Tom Dreisbach, NPR News.

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