Holman Jenkins has a pretty good column in the Wall Street Journal pushing back against the SEC and FBI's "insider information" raids:
The logic of insider trading law, taken to its dead-horse extreme, is to keep good information out of stock prices. In the SEC's ideal world, any information originating inside a company will be reflected in stock prices only after the company has publicly announced it to the world's investors simultaneously. As a colleague said of Stalin, there is no way to get the SEC's ideal world without mangling the real world beyond repair.
Another point he could have made but doesn't is that the force behind this investigation is Preet Bharara, the U.S. attorney for the Southern DIstrict of New York whose experience includes stints as a campaign worker for Manhattan leftist Mark Green and as chief counsel to Senator Schumer on the Senate Judiciary Committee. In a speech to the New York City Bar Association last month, Mr. Bharara gave the following explanation:
there is one substantive area of white collar enforcement that I want to address this evening – insider trading. It is an increasingly noteworthy topic in white collar enforcement, and I predict it will become only more so in the future.
Now I am told there are some people who don't see what all the fuss is about. Insider trading, they suggest, is not a particular scourge and is a poor pick as a priority for law enforcement. I know that no one in this room thinks that. (Perhaps that's because you all have bills to pay.)
It will come as no surprise to anyone here that I believe illegal insider trading is extremely significant and should be to everyone who cares about the protection of confidential information and the integrity of the markets. Insider trading involving a tipper and a tippee is both a theft and a fraud, and it is intolerable. Your law-abiding institutional clients all believe and understand this also. Your institutional clients are in business, after all, because they believe in the market. Fair and efficient markets depend, ultimately, on public information and honest dealings and enforced rules. And every cheater— whether he trades on inside information or manipulates the market or makes misrepresentations—cheats every other participant and offends the principles of the market that honest players live by and make their living on.
Unlawful insider trading should therefore be offensive to everyone who believes in, and relies upon, the market. And it is an affront not only to the fairness of the market but also to the rule of law. And it only further feeds the pervasive crisis of confidence in our financial system, what some see as a lack of faith in the economic order and a lack of trust that the same rules apply to everyone.
So, what is the scope of the insider trading problem at this moment? Unfortunately, from what I can see from my vantage point as the U.S. Attorney here, illegal insider trading is rampant and may even be on the rise. And the people who are cheating the system include bad actors not only at Wall Street firms, but also at Main Street companies.
Disturbingly, many of the people who are going to such lengths to obtain inside information for a trading advantage are already among the most advantaged, privileged, and wealthy insiders in modern finance.
But for them, material non-public information is akin to a performance-enhancing drug that provides the illegal "edge" to outpace their rivals and make even more money. In some respects, inside information is a form of financial steroid. It is unfair; it is offensive; it is unlawful; and it puts a black mark on the entire enterprise.
At the same time and for a host of reasons, the detection, investigation, and criminal prosecution of illegal insider trading has become increasingly difficult. It has perhaps never been more difficult to attack through traditional investigative means.
This is so for a number of reasons. Among other things, the sheer volume and complexity of modern stock trading heightens the difficulty of pinpointing specific illicit trades that were based on illegally acquired inside information.
When an institution or a trader can jump in and out of positions at the speed of light and in enormous volumes, illicit trades become easier to mask, harder to find, and subject to plausible deniability. In this context, moreover, pre-textual trading designed to stymie enforcement becomes that much easier to pull off.
Moreover, in the modern information age, there has been a veritable explosion of newsletters, websites, blogs, tweets, and feeds publishing every last rumor and report of potential mergers and acquisitions and earnings reports. That of course makes it easier for an accused insider trader to argue – in the absence of incriminating recorded evidence to the contrary – that any trades were based on some report somewhere, which may never have in fact been believed or even read.
And so on account of these two factors – because illegal insider trading appears so prevalent and because it so difficult to prove – our response has been two-fold. First, as you know from public cases, we and the FBI have devoted significant resources to this priority. But we both have recently added even more resources to this effort – because there is more to be done and more deterrence to be achieved. The investigation and prosecution of illegal insider trading has been, and will remain, a top criminal priority for our Office and the FBI, just as it is civilly for the SEC.
The speech goes on to urge the defense attorneys to report crimes, and to defend the use of wiretapping in insider trading cases. There's also a paean to "the vital importance of prosecutorial independence" and to "the principle that politics and prosecution do not mix," which is pretty rich coming from someone who got his job in part because he was an aide to Senator Schumer.
To me the newsworthy aspect here is that the U.S. attorney had already determined that insider trading was "rampant" before the raids and requests for information that have triggered all the recent publicity. Maybe Senator Schumer told him? Or Mark Green?
I don't want to be misunderstood here. Even if one philosophically favors the repeal of certain laws on insider trading, the laws that are on the books are, at least for now, still the laws, and people should follow them. It's not a case like civil rights in the South where the laws were so bad they warranted civil disobedience. So a money manager paying a corporate insider for advanced knowledge of corporate earnings announcements, say, is not something we're defending here. But a lot of the cases that are rumored or discussed or brought or "rampant" are a lot less clear cut than that. If Mr. Bharara really cares about "fair and efficient markets," the way to achieve them is to focus on increasing and opening the flow of company information to the public rather than restricting the flow of information.
