Opinion

Felix Salmon

The law and theater of insider trading

Felix Salmon
Nov 23, 2010 14:56 UTC

Pull up a chair, folks, the show has already begun, complete with photographs of unidentified “law enforcement officials” in decidedly casual clothes walking cardboard boxes full of “Evidence” out of a Boston hedge fund’s offices. There’s a lot of theater here:

At the Diamondback offices, the FBI agents were interested in information stored on computer servers, the employee at the firm who described the raid said…

“They could have just as easily come in before hours and gotten what they wanted,” the employee said. “Why did this have to be in a dramatic, Hollywood manner?”

The NYT explains what might be going on:

Taking the aggressive tack of using search warrants to raid the firms’ offices, rather than issuing grand jury subpoenas demanding the production of documents, suggests that federal prosecutors are concerned about the destruction of evidence related to possible crimes, lawyers say.

It is also possible that the government has already served these firms with subpoenas, and it is looking to scoop up any remaining documents.

“This guarantees that the government can quickly and securely get its hand on evidence,” said Fernando L. Aenlle-Rocha, a lawyer at White & Case and former federal prosecutor who is not involved in the investigation. “Tactics such as this tend to make people at the targets very nervous and may even prompt some employees to speak to government agents.”

In other words, the theater has a very specific target audience: the employees of any banks or hedge funds which are being investigated. It’s a sign that they can’t kid themselves that this is any kind of routine investigation, and that they should seriously consider turning witness against their bosses.

Part of the problem is that insider trading is a hard crime to nail, as the man in charge of this investigation, Preet Bharara of the Southern District of New York, has said quite openly.

Speaking last month to the New York City Bar Association, Bharara called insider trading a “rampant” problem that prosecutors need more tools to fight.

He said the increased speed and volume of trading makes it harder to pinpoint specific illegal trades and that a “veritable explosion of newsletters, websites, blogs, tweets, and feeds” can make it easier for the accused to argue that they traded based on information obtained legally.

Another part of the problem is that the net here is being cast so broadly—it includes not only traders and bankers but also “expert network” firms that connect hedge funds with industry specialists—virtually anybody trading on non-public information should probably reasonably be very worried right now.

It’s worth emphasizing that—at least up until now—trading on non-public information is not, in and of itself, illegal. Neither is disseminating that information, if you’re not an insider. (To take just one obvious example: disseminating non-public information is what journalists do every day.)

But, as Integrity Research points out, this is an area of jurisprudence which is constantly evolving:

Insider trading is a broad topic which is mostly defined by case law rather than clear regulatory statutes. Because of the gray areas surrounding the definition of insider trading, it is easy to be swept up in the emotion surrounding what the WSJ is billing as the mother of all insider trading cases.

One company which seems to have got swept up in the emotion is Big Lots, which has retained Cravath, Swaine, and Moore, no less, in a lawsuit against Retail Intelligence Group, a small Tampa, research firm. That, in and of itself, looks like bullying to me. The researchers went out and got intelligence on individual store sales and pieced those datapoints into a picture of a company which was about to disappoint the stock market. They were right. And now, for their pains, they’re being sued by Big Lots, which—given its earnings and stock price—really ought to have bigger things to worry about.

In a short video accompanying the story, the WSJ‘s Dennis Berman—a former Deal Journal blogger—tells viewers that “I suggest people go read this lawsuit because it really speaks a lot about where insider trading law is headed.” I’d love to, Dennis, but you didn’t post it. Come on, Dennis, there’s no copyright in lawsuits. Post it. That’s your job. And more generally, it would be good to have some well-reported explanations of what is and isn’t illegal when it comes to trading, and whether Bharara’s investigation might move the needle on that front.

Update: The WSJ has now posted the complaint.

COMMENT

I think the thing that the government and most people not within the financial services industry forgets is, risk.

Risk occurs in all insider trading cases, especially in the the cases with Big Lots. At the end of the day Retail Intelligence is expressing an opinion, not a fact. There is no guarantee that you’ll profit by following Retail Intelligence’s opinion.

Even if the case was that Big Lots CEO is giving non-public information to an analyst, such as an extraordinary dividend. The information is still not guaranteed. How do you know that the CEO isn’t just trying to ramp his stock? Or that perhaps the CEO doesn’t like the analyst and is trying to send them on a wild goose chase. Or even if the CEO is telling the truth, how do you know it’s not going to be rejected at the last minute by the board? At the end of the day the analyst is still taking risk from the information.

Is it less risky? Only if the analyst is sure of himself. But then is that any different to the analyst deciding that Big Lot’s sales are directly correlated to the number of lizards in his back yard? What happens if they were, would the analyst have an unfair advantage?

As you can see there is a fallacy in claiming that insider trading effects people.

If insider trading is based on having an “unfair advantage” over the “public” then basically everyone in the financial services industry has an unfair advantage over the public. Heck just having a Bloomberg terminal should be considered unfair, not everyone can afford one. Not to mention it most likely DOES give “non-public” information. Information usually distributed faster on financial networks than via public media.

Or even going further, the Australian Securities Exchange releases pricing data on its websites on a 20 minute delay. If I was to rely on that, then I am severely disadvantaged and someone with real-time-pricing would have “non-public” information.

Or what happens if my coworker has a faster computer than me? Is he getting price data faster than me? Is he getting news releases faster than me? Yes. Could that be considered non-public?

Where does it end?

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Counterparties

Felix Salmon
Nov 23, 2010 07:02 UTC

Number of Americans Ignoring Their Finances Doubled in 2010 — WalletPop

Jesse Green’s profile of Spiderman and Julie Taymor. I’ve been walking by the theater every day, now I want to go in! — NY Mag

Adam Levitin weighs in on the legal nitty-gritty of the mortgage mess — Credit Slips

Did DC’s top ethics cop break her own rules? The further machinations of the anti-anti-for-profit-college crowd — Salon

One man’s victory against the TSA idiocy — No Blasters

Can QVC Translate Its Pitch Online? — NYT

NYT vs WSJ on the effects of NYC’s new bike lanes — NYT, WSJ

Reuters people most numerous in roll of slain journalists — The Baron

Money really can buy ugly — Curbed

Remind me never to go to hospital in the US — Currency

If you have a “what if somebody steals my idea?” mindset you will never get funded — Information Arbitrage

Ireland’s Hottest T-Shirt — TBI

What Tynt reckons New Yorkers find most engaging — Tynt

Quadrangle kaput — NYP

The TSA apologizes for delays to its wait-time calculator — TSA

“He is among the top 20 powerlifters in the world in his weight class, and he was runner-up two years in a row for the best paper in the Journal of Finance” — Modeled Behavior

Worst Android tablet ever — Ars Technica

COMMENT

In the U.S., you don’t go to hospital; you go to the hospital.

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China expert of the day, Benjamin Wey edition

Felix Salmon
Nov 23, 2010 05:15 UTC

In September, one Benjamin Wey, calling himself “Chinese American Financial Expert Foremost Expert On Chinese Business in U.S.”, put out a press release announcing that he’d engaged a PR company. And it wasn’t just any old PR company: it was 5WPR. Go on, look them up.

Amazingly, the gambit worked. Before you knew it, Wey was on Fox Business! He was on TheStreetTV! He was a speaker at the Bloomberg Hedge Funds Asia conference! His In the Media page, with absolutely nothing in the three-year gap between August 2007 and August 2010, suddenly came to life, with 13 different media appearances between September 8 and November 15 of this year. I daresay more are on the way.

The point here is, basically, that you really shouldn’t listen to people quoted in the media just because they’re quoted in the media. After all, Benjamin Wey got all this attention just by hiring an incompetent superflack — and despite having been comprehensively exposed back in 2006 by Herb Greenberg:

Before getting his MBA in 1999 from the University of Central Oklahoma, Benjamin Tianbing Wei became an investment advisor and started an investment advisory firm in Oklahoma…

In 2002, he ran into trouble with securities regulators, including a brief suspension and fine by the NASD…

Last year, after several years of legal wrangling, he was censured by the Oklahoma Department of Securities. While not admitting or denying the charges, he agreed he wouldn’t ever again seek to do any brokerage or investment advisory business in the state…

Wey had been founder, majority shareholder and CEO of Benchmark Global Capital in Oklahoma, which like New York Global, specialized in Chinese stocks. When I first asked, through his spokesman, whether he had ever been associated with “Benchmark Capital” — not Benchmark Global Capital — and whether he changed his name from Wei to Wey, his email response was, “No.”

He moved the company to New York in June 2002 through the purchase of his Oklahoma operations by a New York-based entity of the same name. Within six months he was fired as CEO and as a director by his board.

In an era when television stations and other media outlets are desperate for “experts” they can wheel out on any subject at all, but especially stocks, and especially China, and extra especially Chinese stocks, it seems that anybody with any kind of PR firm can get themselves booked and quoted all over the place, by people who probably never even bothered Googling the guy, and who almost certainly never got around to reading his bonkers rant against Greenberg over at 10Q Detective. The media, it seems, can be much more gullible than, say, the public at large: Wey’s Twitter profile has exactly zero followers. (Not even 5WPR, which links to it.)

So the next time you see someone quoted from a firm you’ve never heard of and you have no idea who they are, feel free to ignore everything they’re saying. There’s a good chance they’ve simply been planted by a PR firm rather than chosen for their expertise by a conscientious journalist.

(Full disclosure: the last place that Wey was quoted, before he went dark for three years but after the Greenberg exposé, was Reuters. And it was Greenberg who tipped me to Wey’s reappearance on the media circuit.)

COMMENT

Wow. Looks like someone (5WPR?) is busy with the sock puppets here…

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Why Wall Street won’t get shrunk

Felix Salmon
Nov 22, 2010 19:47 UTC

This week’s New Yorker features 8,000 words from John Cassidy on how financiers extract rents from the real economy rather than adding real value. His article features not only The Epicurean Dealmaker, star of blog and Twitter, but also Paul Woolley, a former fund manager who now runs the Woolley Centre for the Study of Market Dysfunctionality, a man who knows how to give great quote:

“I realized we were acting rationally and optimally,” he said. “The clients were acting rationally and optimally. And the outcome was a complete Horlicks.” …

“Mispricing gives incorrect signals for resource allocation, and, at worst, causes stock market booms and busts,” Woolley wrote in a recent paper. “Rent capture causes the misallocation of labor and capital, transfers substantial wealth to bankers and financiers, and, at worst, induces systemic failure. Both impose social costs on their own, but in combination they create a perfect storm of wealth destruction.”

Cassidy is good at focusing on excessive pay in the industry:

Perhaps the most shocking thing about recent events was not how rapidly the big Wall Street firms got into trouble but how quickly they returned to profitability and lavished big rewards on themselves. Last year, Goldman Sachs paid more than sixteen billion dollars in compensation, and Morgan Stanley paid out more than fourteen billion dollars. Neither came up with any spectacular new investments or produced anything of tangible value, which leads to the question: When it comes to pay, is there something unique about the financial industry?

Thomas Philippon, an economist at N.Y.U.’s Stern School of Business, thinks there is. After studying the large pay differential between financial-sector employees and people in other industries with similar levels of education and experience, he and a colleague, Ariell Reshef of the University of Virginia, concluded that some of it could be explained by growing demand for financial services from technology companies and baby boomers. But Philippon and Reshef determined that up to half of the pay premium was due to something much simpler: people in the financial sector are overpaid. “In most industries, when people are paid too much their firms go bankrupt, and they are no longer paid too much,” he told me. “The exception is when people are paid too much and their firms don’t go broke. That is the finance industry.”

Cassidy concludes with an ode to an earlier era:

In 1940, a former Wall Street trader named Fred Schwed, Jr., wrote a charming little book titled “Where Are the Customers’ Yachts?,” in which he noted that many members of the public believed that Wall Street was inhabited primarily by “crooks and scoundrels, and very clever ones at that; that they sell for millions what they know is worthless; in short, that they are villains.” It was an extreme view, but public antagonism toward bankers and other financiers kept them in check for forty years. Economic historians refer to a period of “financial repression,” during which regulators and policymakers, reflecting public suspicion of Wall Street, restrained the growth of the banking sector. They placed limits on interest rates, prohibited deposit-taking institutions from issuing securities, and, by preventing financial institutions from merging with one another, kept most of them relatively small. During this period, major financial crises were conspicuously absent, while capital investment, productivity, and wages grew at rates that lifted tens of millions of working Americans into the middle class.

Since the early nineteen-eighties, by contrast, financial blowups have proliferated and living standards have stagnated. Is this coincidence? For a long time, economists and policymakers have accepted the financial industry’s appraisal of its own worth, ignoring the market failures and other pathologies that plague it.

Cassidy’s view is a clear-eyed and straightforwardly reported version of, say, this, from Noam Chomsky:

The capitalist class in the ’50s was sort of part of a social contract. It was part of the tenor of the times… Changes have taken place since then… In the financial institutions, which by now dominate the economic system, the management level repeatedly acts in ways which will destroy their own institutions if it’ll increase their benefits, and benefits are not small. You know, you take a look at the revenue of, say, Goldman Sachs – a very high percentage of it just goes to payment of management and bonuses. There was a time traditionally – say, GM in the 1950s – it was trying to develop a consumer base that would be loyal and lasting and they were thinking in terms of an institution that would remain and grow and thrive in the society. By now, a lot of the investment firms – bankers, hedge funds – are perfectly happy to destroy what they’re in and come out with huge, tremendous benefits. That’s a new stage of capitalism.

Chomsky praises Yves Smith’s book as being “really good”, and says nice things about Simon Johnson, too; I’m sure if asked he’d be equally complimentary of, say, Joe Stiglitz or Jamie Galbraith. Elsewhere, he praises Dean Baker, and dates the beginning of the end to the dissolution of the Bretton Woods system:

In the mid 1970s that changed. Bretton Woods restrictions on finance were dismantled, finance was freed, speculation boomed, huge amounts of capital started going into speculation against currencies and other paper manipulations, and the entire economy became financialized. The power of the economy shifted to the financial institutions, away from manufacturing. And since then, the majority of the population has had a very tough time; in fact it may be a unique period in American history. There’s no other period where real wages — wages adjusted for inflation — have more or less stagnated for so long for a majority of the population and where living standards have stagnated or declined.

There’s clearly a large and appreciative audience in the blogosphere and in middlebrow magazines for this kind of analysis, which has even now become a feature-length documentary. But equally clearly it doesn’t even begin to play with the electorate as a whole. Look at what happened in the mid-term elections: insofar as Dodd-Frank was an issue at all, it was criticized for going too far — for being too much of an incursion by government in private industry — rather than for being too weak.

What has changed since the 1940s and 1950s, when popular mistrust of Wall Street was more than sufficient to constrain its ambitions and dangers? When even well-heeled investment bankers are on pretty much the same page as Noam Chomsky (or, for that matter, Eric Cantona), why is it that such sentiments still seem confined to the chattering classes? Maybe it’s just that this stuff is complicated, and that there’s little incentive for most people to put in the work needed to begin to understand it.

It’s certainly a lot more complicated now than it was in the 30s and 40s. As I noted in my review of Michael Perino’s book on Ferdinand Pecora, the Wall Street excesses of the 1920s were far simpler and more obviously egregious than the Wall Street excesses of the 2000s. Unless and until we see a parade of bankers in handcuffs being convicted of serious crimes, I suspect it’s going to be impossible to persuade the public at large that Wall Street is out of control and needs to be brought down to size. Even when former Wall Streeters like Woolley are clear of what needs to happen:

“The amount of rent capture has been huge,” Woolley said. “Investment banking, prime broking, mergers and acquisitions, hedge funds, private equity, commodity investment—the whole scale of activity is far too large.” I asked Woolley how big he thought the financial sector should be. “About a half or a third of its current size,” he replied.

That would be nice. But it’s not going to happen.

COMMENT

hsvkitty, it has actually been a very good year for me. Perhaps that is because tutoring is a service business for the upper middle class? Perhaps it is the local economy? (Bouncing back stronger and faster here than elsewhere in the country.) But last year I was struggling to book clients and this year I filled up in early October.

I’m not quite ready to throw a $100,000 party, though!

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CDS chart of the day, Portugal edition

Felix Salmon
Nov 22, 2010 17:17 UTC

Many thanks to my colleague Eric Burroughs for sending over this chart, showing how Portugal’s CDS curve has evolved over the course of this year:

cid_image001.jpg

The black curve is how Portugal looked in April: a pretty standard upward-sloping curve, with default more likely the longer you go out.

By June, however, with the onset of the Greece crisis, things looked very different. (This is the green curve.) Obviously default probabilities were higher across the board. But they were highest at the short end of the curve: 6 months to a year out. If Portugal could make it that far, markets were saying, then it would become steadily less likely to default thereafter.

Today, with the red curve, it’s very different yet again. The contrast from just a few months ago is striking: while the 1-year CDS showed the highest default probability back then, today it’s the lowest. The EU bailout of Ireland confirms that Portugal will probably not be allowed to default any time soon.

But then look at where Portugal’s CDS curve goes after that: straight up, to the point at which the country is now considered more likely to default at 3 years out, and on from there.

The implication is clear: any bailout now only serves to make a future default more likely.

Which is not, I’m pretty sure, the message that the EU is really intending to send.

COMMENT

@tedtwong I meant only that the conceptual price of bearing credit risk can be reflected by a spread. You are correct that there is a relevant distinction between an up-front cash payment and a running spread. As greycap alluded to, the CDS market conventions changed last (dubbed the CDS “Big Bang”) s.t. single-name CDS ar now be quoted in a combination of up-front cash payment (points) and a standardized rolling spread (of either 100 or 500 bps, depending on the credit). Sorry if my explanation obfuscated rather than clarified.

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The user-hostile FT

Felix Salmon
Nov 22, 2010 15:47 UTC

John Gruber wrote the definitive article about “Tynt, the Copy/Paste Jerks,” back in May. Tynt is the company which adds what Gruber quite rightly calls “a bunch of user-hostile SEO bullshit” to your clipboard every time you copy text from a website; most of the time that text comprises a unique link back to the post in question.

In the annals of Tynt-based user hostility, however, I suspect that FT.com has now won some kind of prize. For one thing, their addition comes before, not after, the text you’re trying to copy. And what’s more, it actually tells you that you’re in breach of the website’s terms and conditions. Here’s an example:

Please use the link to reference this article. Do not copy & paste articles which is a breach of FT.com’s Ts&Cs (www.ft.com/servicestools/help/terms) and is copyright infringement. Send a link for free or email ftsales.support@ft.com to purchase rights. http://www.ft.com/cms/s/0/f01e34f0-f5a9-11df-99d6-00144feab49a.html?ftcamp=rss#ixzz161RfBYUK

Hilariously, even the FT’s own journalists are falling foul of this idiocy: on Thursday, in his Markets Live conversation, Neil Hume wound up pasting text onto the FT’s website saying that he was infringing the FT’s copyright. “Sorry,” he then added. “Damn disclaimer.”

It’s pretty clear that the FT doesn’t want people like me linking to them. Their Money Supply blog, for instance, after disappearing behind the paywall in June, linked to me this morning. But I don’t know what they said, because even when I paste the headline (“Would €90bn be enough for Ireland?”) into Google and click on the Google link—something which works with most FT stories—I still run into that paywall.

Meanwhile, the FT’s terms and conditions page gives me very strict instructions on exactly what I must—yes, they use the word “must”—do if I want to link to their stories:

These are the conditions you must comply with in order to produce summaries:

- you source FT as the author of any article from which you have derived a summary by way of an attribution such as “[journalist name] at the Financial Times reported that”, with a hypertext link from the word “Financial Times” to the original story published on FT.com.

And at the bottom of every story, the FT now adds this note:

You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.

Which seems to me to basically say “don’t blog this article.”

All of which makes me agree with Matt Yglesias that there’s increasingly no point in subscribing to the FT any more. If I want to pay for the privilege of passively receiving their words of wisdom, that’s fine. And if I want to use their article-sharing tools to drive my friends into the FT paywall in an FT-approved manner, then they’re OK with that as well. But if I want to use incredibly simple and obvious ways of sharing what I’m reading—copy-and-paste, email, blogs—then the FT’s now telling me quite aggressively that I’m some kind of criminal and should just stop what I’m doing and go away.

What I don’t understand is what the FT hopes to achieve with all this user-hostile aggression. It obviously doesn’t garner any goodwill from its readers or subscribers. And it’s hardly going to get extra marginal subscriptions by telling us not to link to it or publicize its content. All I can imagine is that it’s retreating to a newsletter model, where subscribers get value not only from the content itself but also from its exclusivity: they pay for subscriptions precisely because other people don’t have one and therefore can’t read the articles. It’s a sad and narrow fate for what should be a proud and global newspaper.

COMMENT

Good article, Felix. I had a pop at the FT’s “embedded” approach to financial coverage in this blog post…. http://www.ianfraser.org/embedded-financ ial-journalism-at-its-worst/

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WSJ vs PIN

Felix Salmon
Nov 22, 2010 14:11 UTC

Gartner’s Avivah Litan knows what she’s talking about when it comes to the relative safety of signature debit and PIN-based transactions. PIN is much safer — to the point at which Bonneville Bancorp recently banned signature debit altogether, despite its higher fees:

“All I can think of is that the fraud was so high that the lost interchange revenue is worth it compared to the cost of issuing new accounts,” said Avivah Litan, a vice president and distinguished analyst at the Stamford, Conn., market research company Gartner Inc. “It’s a statement admitting PIN is more secure” …

Litan said there is no confusion about which is the more secure method.

“From a pure technical security standpoint, PIN is much more secure,” she said. “There’s no two ways about it.”

So how on earth did the WSJ’s Karen Blumenthal manage to report this over the weekend, in an article about ATM fraud?

Use your PIN sparingly at retailers, and choose the signature option—or a credit card—instead, Ms. Litan says.

This doesn’t make any sense. For one thing, the article is about ATM fraud, and says nothing about the possibility of fraud when using a retailer’s POS machine. And as Litan well knows, signature debit is much more prone to fraud than using a PIN.

More generally, Blumenthal seems weirdly wary of the most secure form of payment there is:

Chip-and-PIN technology isn’t foolproof, and experts say U.S. banks and retailers may instead leapfrog that technology, possibly by using the capabilities of smartphones to verify transactions or to actually make the transactions instead of using a card.

“Foolproof” is an impossible and silly standard to use when it comes to payments; I can guarantee you that if and when smartphones get involved, that won’t be foolproof either. And in any case, smartphone verification is still very much in the realm of science fiction, in stark contrast to chip-and-PIN technology, which is used by hundreds of millions of people every day.

The fact is that chip-and-PIN is safer than PIN, and PIN is safer than signature. But you’d never guess that from reading Blumenthal’s piece. And I’m genuinely puzzled about that quote from Litan.

Update: Litan clears things up in the comments. Signature debit is definitely more prone to fraud — so in order to incentivize their customers to still use it, the banks are much more generous when it comes to fraud coverage for signature debit than they are for PIN transactions. As a result, it makes sense for consumers to use the less secure payment method — because if they are a victim of fraud, they’ll be covered more quickly and easily.

COMMENT

Hi, sorry about the confusion. The press doesn’t have enough print room to give the full context.

Adding a PIN to a payment (e.g. PIN debit) is more secure than not having the PIN. So PIN debit is definitely more secure and less fraud prone than signature debit.

HOWEVER, the banks earn more interchange revenue on signature debit (since they can rightfully claim that they are riskier payments so they need the increase in revenue to offset the fraud costs). So they distort the market (in a sense) by incenting consumers to use the more risky debit transaction type – or signature debit.

The banks incent the cardholders to NOT ENTER THEIR PINs on debit transactions by:

a) covering them more generously in the case of fraud when they don’t enter their PIN
b) giving them loyalty (e.g. frequent flyer) points when they don’t enter their PIN.

Check out the fine print on the check card agreements from most banks.

So in sum, consumers are incented to use a less secure form of debit card payment – signature debit – so that the banks can make more money. Merchants pay banks less for PIN debit transactions even though they are more secure and they would much rather accept a PIN debit transactions. So merchant incentives are at odds with consumer incentives. (Walmart sued over a derivative of this issue years ago, which resulted in a $5 billion award for Walmart and other retailers that Visa and MasterCard had to pay out, and the convoluted concept we are stuck with now which is ‘using your debit card as a credit card’).

As a consumer, you are better off not entering your PIN on a debit card transaction since you will be covered much more quickly and easily in the event of fraud.

Hope this murky situation is clear.

Thanks.

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How the FBI puts researchers out of business

Felix Salmon
Nov 22, 2010 13:40 UTC

Remember the rather wonderfully worded e-mail sent out to clients by John Kinnucan of Broadband Research in October?

Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.

Today Susan Pulliam reveals just how harmful that visit was:

At the age of 28, Mr. Kinnucan was hit by a bus while jogging in Florida, suffering four broken bones, two collapsed lungs, a lacerated liver and internal bleeding. When the FBI visited, he says, “I just thought about being under that bus and knowing you have to keep fighting.” …

He says that he hasn’t heard back from the FBI agents since their surprise visit, but that his business has imploded. Many of his clients, he says, won’t be able to use his services now that he is under investigation. “I’ll have to figure out something else to do,” Mr. Kinnucan says.

It’s pretty easy to see, here, how the FBI agent in question, David Makol, has developed a reputation for being able to “flip” the people he’s investigating. If they cooperate, they can continue to work. If they don’t, they’re put out of business—a harsh punishment indeed given that they have been convicted of absolutely nothing.

COMMENT

I’ve worked with the FBI before, and on the whole, they are pretty sharp cookies. Parts of Kinnucan’s story simply don’t add up. First, they don’t just show up at your door and ask you to wear a wire, it would put the entire investigation at risk. Next, these guys have a job to do that comes with a busy schedule, and don’t spend their idle time “recording my cell phone conversations for quite some time” just for fun and to study your dating practices.

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Counterparties

Felix Salmon
Nov 22, 2010 05:30 UTC

Is investing in small business a better bet than buying stocks? — Locklin

QE2 works much less effectively when it’s broadly criticized — WSJ

Nine out of 10 accidents involving cyclists and cars in Australia are the fault of the motorist — SMH

The French (incl Eric Cantona) will withdraw their money from the banks on Dec 7. But where will they then put it? — YouTube

41% of Twitter users balanced the budget without resorting to the fanciful Medicare growth cap — NYT

Trucks account for 4% of London’s road trips, but 43% of its cyclist deaths — Guardian

“Playing Music Extremely Loud Will Not Make Up For Your Lack of Talent as a DJ” — Eater

Joao Silva, NYT photojournalist, lost both his legs to a mine in Afghanistan. Support his recovery — Joao Silver

Palin’s publisher sues Gawker over book excerpts — AP

“The looming expiration of the BAB program is creating the very conditions it was created to alleviate” — Bond Girl

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