I've been a casual investor for quite a number of years. I've done reasonably well with it, although I have a policy of not putting enough money at risk to jeopardize my lifestyle, present or future. So when I gain, it isn't enough to move me into the ranks of the idle rich. Likewise any losses I incur don't put food and shelter at risk.
Along with my interest in investment, I'm fascinated with SEC filings and actions. It may seem like a boring and dry topic to most people, but many of the actions brought by the SEC would feel at home in a John Grisham novel. Also bear in mind that the high drama and tragedy of Enron was brought to a head by James Chanos, a short seller, simply reading Enron's annual report carefully, something that most equity analysts covering the energy industry lacked either the abililty or the work ethic to do.
I was browsing the SEC website this morning and noticed that a settlement had been reached in the insider trading case of Bauer, Kluger, and Robinson.
Matthew H. Kluger was a senior associate in the corporate law firm firm Wilson Sonsini Goodrich & Rosati.
Along with providing other corporate legal services, that firm is deemed one of the top ten specialists in mergers and acquisitions in the nation. Advance insider knowledge of mergers and acquisitions is one of the most valuable classes of information in the world of stocks and options. The company being aquired often exhibits a short term spike in the price per share of their stock. Consequently, the person utilizing the insider information will load up on the stock, and sell it at some point after the acquisition becomes public.
Kluger had also been carrying out the illegal activity in two previous law firms in which he'd been an associate. He had evidently begun the activity in the 1990s, and specialized in mergers and acquisitions involving well known high tech firms.
Garrett D. Bauer was the trader who made use of the insider information. He and Kluger were linked through a mutual friend, Kenneth T. Robinson. There is little doubt that Bauer, Kluger, and Robinson knew that they were involved in illegal activities, since they used untraceable prepaid cell phones and public phones to avoid detection, and exchanged money from the proceeds in Atlantic City, NJ.
Robinson, the middleman, cooperated with the authorities. The terms of the settlement, pending court approval, are that the three will give up the money they made, plus interest. Bauer will be charged about $32,000,000, Robinson $845,000, and Kluger $516,000.
An interesting note is that the scheme began in the 1990s, but the acquisitions cited in the charges began in 2006. Presumably Kluger passed information along which resulted in more money than the three conspirators are actually returning, unless calculations of the earlier gains were made in some fashion other than examining the specific trades contained in the charges.
The three conspirators were also indicted on criminal charges by the U.S. Attorney's office in New Jersey. They pled guilty, and will be sentenced on June 4th.
I've been of the opinion for quite some time that the penalties and regulations for Wall Street malfeasance are much too weak. This particular case was so far over the line into obvious criminal activity that it was a slam dunk for the authorities.
But it also involved small players. The financial collapse of confidence in 2008 had much broader impact on the economy than the antics of this particular crew of Three Stooges. There should have been indictments of major Wall Street figures after the financial collapse. I think it's obvious that the reason for the lack of wholesale indictments was political, brought on by a fear of further erosion of confidence leading to further economic meltdown, and not on the strength of potential court cases.
As welcome as the charges and indictments against Bauer, Kluger, and Robinson are, I'd be a lot happier if the top leadership of major Wall Street firms were also held accountable for their actions.