Wall Street: an outline of a recent insider trading case

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.

 

Comments

[Yuichi]

I think it's very important to do reeacrsh on the company especially when it comes to contacting support. I can think of a customer experience that was shared with me about Samsung TVs. The LCD TV series had a recall on them but the person who shared the story with me did not know that. He paid a few hundred dollars to get it repaired and on my advice fought for his money back. If reeacrsh had been done prior to this, he would have known about the widely publicized capacitor problem,. He would have saved himself the hassle of multiple calls to support and shelling out money unnecessarily. Thanks for the question!

[binary options]

That is really an evidence that it is important to investigate on a company before you deal with it. The experience of other customers should be taken into consideration.

[converse pas cher]

Olen olnud arvamusel, üsna pikka aega, et karistused ja määrusi Wall Street seadusvastane tegevus on liiga nõrk. Ma arvan, et see on väga oluline teha reeacrsh ettevõtte eriti kui tegemist on ühendust toetust..

[Alfred]

He left out a few layers in the crsiis:Internet banking allowed banks to offer high rates for deposits easily to large audiences, forcing even formerly-conservative banks to offer such rates or perish. Such rates of return were only available safely and liquidly if they invested in the MBSs.Local agents for all mortgage services (e.g., inspections, appraisals, etc.) were none-too-subtly apprised that their services were only being requested if they could deliver a suitable product. The businesses, often single-proprietors, were so overworked that actual due diligence was nearly impossible, even if they were not bought and paid for. Even respectable agents were brought into the fold by the self-sustaining belief that their services were truthful (as long as the prices of houses continued to go up).Homebuilders, riding the wave, way overproduced housing beyond what the actual eventual economy could sustain, thus the lack of current demand for housing at any price.Homeowners, living beyond their current means (but knowing that things would keep going up, as they always had), borrowed from their homes (which artificially propped up the economy and pushed the refinance boom concurrent with the mortgage origination boom).Et cetera, et cetera, et cetera. Way too many ripples to cite in one post.NONE of which was caused by any fictitious Fanny Mae or Freddie Mac requirement that banks lend money to unqualified, poor borrowers.

[Timea]

Barry Ritholz is a well respected guy that not enguoh people listen to, probably because as a commenter upstream put it, he puts together concepts and words beyond the attention span of the average wingnut. I was dismayed by some of the comments to his article, some rightard claiming no, it was the democrats and fannie mae and freddie mac that caused the problem the Big Lie personified.But here again, the fact that the Big Lie exists at all is the failure of the Democrats especially Barack Obama to explain to the country what happened. I happened to pass by an LA Times news stand, the lead article saying (in a nutshell) that Obama has more campaign cash by far than any of his rivals. Gee, I wonder where it all came from?