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Pequot’s Samberg Deserves Hard Time in the Sin Bin for Insider Trading

Posted by Larry Doyle on May 27, 2010 12:48 PM |

Justice not properly dispensed is ultimately justice denied. Regrettably this reality happens all too often in our country. For whatever reason, white collar crime in general and financial crimes specifically are all too often adjudicated by the imposition of fines. I think this is wrong.

I see this reality playing out yet again in a story just released by Bloomberg, Pequot, Samberg Pay $28 Million to End Insider-Trading Probe,

Pequot Capital Management Inc. and the hedge-fund firm’s founder, Arthur Samberg, will pay almost $28 million to settle regulatory claims they illegally tapped information from a Microsoft Corp. employee to bet on the software maker’s stock.

The U.S. Securities and Exchange Commission is also bringing civil claims against the ex-Microsoft worker, David Zilkha, who concealed his actions during an earlier investigation, the agency said in a statement today.

“The cases have two particularly troubling aspects — a hedge fund manager trading on illegal insider information, and his tipper source who withheld crucial information about the scheme during an SEC investigation,” SEC Enforcement Director Robert Khuzami said in the statement. “Both are high-priority targets for SEC Enforcement.”

Jonathan Gasthalter, a spokesman for Pequot and Samberg, declined to comment.

Insider trading is theft. The theft comes not only from the other shareholders in a company’s stock, but also in a loss of market confidence and integrity. (Dare I say market confidence currently is low as many investors believe unscrupulous activities are prevalent in the market and are promoted by Uncle Sam to prop the market. That is another story but it is related).

In my opinion, insider trading should be aggressively dealt with in terms of hard time. If this insider trading probe into Pequot and Samberg were so large as to warrant a $28 million fine, then how might Art feel about cooling his heels for 15-20 years. Maybe then he might sing a little longer and louder.

Until our financial regulators and judiciary are willing to aggressively prosecute insider trading charges and demand justice in terms of hard time in real prisons, these crimes will perpetuate. Additionally, dispensing justice in the form of fines further emboldens those who maintain there are two types of justice in our country.

You never find one mouse. In similar fashion, do not think for a second that there is not a lot more of this insider trading activity centered within hedge funds. When and how might it be eradicated?

Hard time in the sin bin.

Related Sense on Cents Commentary
Did Morgan Stanley’s John Mack Just Get ‘Shot?’, (September 10, 2009)

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