Sylvester Stallone once told an interviewer about advice he got from Carl Icahn when they were discussing investments. “The dumbest guy on Wall Street is smarter than you,” Icahn warned him. “Keep your money in the bank.”
The Great Debate
Since Raj Rajaratnam was arrested in late 2009, federal agents have swept up more than 60 hedge fund employees, consultants, and corporate managers in the largest insider-trading crackdown in history. Most of those arrested are now in or on their way to prison for sentences generally measured in years.
Preet Bharara’s work rooting out insider trading is good news for U.S. investors, as long as you’re not one of the 240 people being investigated. But until governments tackle insider trading on a global basis, it’s like playing Whac-A-Mole. If your business model includes insider trading, you can pop up in Hong Kong or London almost as easily as Tokyo and Shanghai without much fear of prosecution.
Sometimes legal fishing expeditions pay off.
A year ago, a Connecticut hedge fund sued UBS, contending that it knowingly sold toxic mortgage-backed securities to institutional investors but never disclosed that information.