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Tuesday, February 28, 2012

New wave of insider trading prosecutions, and Gordon Gekko is back (sort of)

With the help of the WSJ, the FBI announced today that it is looking at 120 people as possible targets of insider trading charges, with an additional 120 who are merely subjects.   Presumably, the announcement is intended to cause some guilty parties to call their lawyers and arrange for an early cooperation meeting with the US Attorney's office.  Or perhaps it is meant to strike fear into the hearts of bankers and hedge funders near and far.  Or curry favor with those critics who have been asking "where are the prosecutions?" in the wake of the sub-prime mortgage crisis. 

At the same time, the FBI rolled out its new public service announcement against securities fraud and insider trading, employing Michael Douglas (of Gordon Gekko fame) as its  spokesman.  I'm curious if the FBI will get some flak for the PSA, since no real businessperson is about to be deterred by Michael Douglas, although the clip does invoke some fond memories of an aging movie (even better than The Artist!).  My guess is that the clip is aimed not at deterring high level officers and supervisors, but rather at securing information and tips from corporate middle management and lower level employees.  

I doubt the clip fulfills even these modest ambitions. [And I might add, I wasn't sure that Michael Douglas' description of his character and the movie was entirely correct.  As I recalled it, Gekko was engaged in a combination of insider trading and nasty raids of companies in which he would sell off all the assets and fire the employees.  Douglas' PSA sounds more like a warning about securities fraud, which differs substantially from inside trading and raiding - but perhaps my memory is off and Gekko was a fraudster as well.]   Moreover, I am a bit surprised that it is the FBI putting out the announcement, since the SEC already has its own public campaign to increase tips and information about corporate fraud and insider trading, and it is backed with monetary rewards.  (Although, on second thought, monetary rewards may not be the best way to secure information, as discussed by Yuval Feldman and Orly Lobel here).   The FBI's clip doesn't even mention the SEC.  I wonder how the SEC feels about that.

Posted by Miriam Baer on February 28, 2012 at 01:27 PM | Permalink

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Comments

Should insider trading really be the highest priority financial crimes for the FBI?

How about investigations into systematic fraud in CDS, CDO and other fixed income offering documents? Into systematic soliciting of fraudulent mortgage applications? Into violations of Section 906 of the Sarbanes–Oxley Act (accounting fraud)?

Fraud on the market seems like a bit of a sideshow in comparision. The main victims, such as they are, are people who are also trading (i.e. rich people) rather than buy and hold investors (i.e. retirement and pension funds).

Posted by: Brad | Feb 28, 2012 4:07:31 PM

It would have been much more compelling to have Douglas film the PSA alongside Charlie Sheen (Bud Fox), but it's likely that may have added an unintended comedic effect. Ultimately, a tie to the "Wall Street" films brings a familiar face to the issue -- and it encourages these sorts of discussions. On a side note, I find it interesting that, throughout his career, Douglas has played his share of characters who are decidedly imperfect, yet he remains highly popular. He has branded himself in such a way that (despite flaws that keep him accessible) he is memorable, respected, likeable, and has an incredible acting range, much like Jack Nicholson.

Posted by: Kelly Anders | Feb 28, 2012 2:20:59 PM

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