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“Insider Trading Is Rampant and Routine”

Posted by Larry Doyle on January 19, 2012 1:15 PM |

As much as Wall Street is the center of the financial services industry, it is really a simple business that revolves around people and information.

That basic reality makes this business so fascinating. The personalities, the pace, the flow of data, and ultimately the interaction between counterparties make everyday a fascinating experience.

In order for Wall Street to thrive, though, and for our markets and economy to prosper, there needs to be a premise and a pursuit of fair dealing on a level playing field.

In the thirty years in which I have been involved in the markets, I have never sensed until the last few years that a rapidly growing percentage of market participants question this premise of fair dealing and level playing field.

Should we be surprised? Certainly not. In the face of high frequency trading, regulatory capture, too big to fail, and other intended and unintended consequences of current practices and policies, so many people in our nation question the very integrity of Wall Street itself.

I find this truly regrettable because our nation needs a healthy Wall Street with a healthy regulatory system in order to inspire real investor confidence. We are a LONG way from that reality.

Where are we? Well, in light of the most recent arrests in an ongoing insider trading scandal on Wall Street, let’s navigate and see how the US Attorney in Manhattan characterizes the current state of the state on Wall Street.

In a recent article in the Financial Times, ‘Perfect Hedge’ for Wall Street Prosecutors, Preet Bharara:

said the case, which resulted in criminal insider trading charges against four hedge fund employees and guilty pleas by three analysts, shows that insider trading is “rampant and routine, and that this criminal behaviour was known, encouraged, and exploited by authority figures in several investment funds”.

Rampant and routine? Is that right? Are you in a hurry to venture into these waters?

This reality truly should not come as a surprise given the preponderance of evidence showing that our regulators are captured by the industry and that the equity exchanges themselves promote glorified front running under the current construct of high frequency trading.

Navigate accordingly!

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.


  • Chris

    Seems the only way to navigate through our finaical system is to accept that it is corrupt and unfixable. Unfixable, because it is not in the interest of the 1%to fix it. The Supreme Court’s decision not to hear the FINRA suit shows that not even justice exists in the system.

    Insider trading whether to make a quick profit or implement an investment policy over a longer term, is legal for the 1% but not the rest of us. Wouldn’t surprise me a bit if the regulators themselves use information they obtain through routine examinations to enrich themselves. Investors need to find a way to protect themselves from FINRA. They are no longer the SRO which was formed under the act. It takes much less of an idiot to realize a For Profit Corporation can’t be trusted to do anything except seek their own self interest. Can’t pay 7 million dollar bonuses without profit. Wasn’t it once the case that the NASD relied on member assessments for their budget?

    So until something drastic happens, I won’t ever return as an investor.

  • LD


    Here is more fuel for the fire from a commentary I wrote back in late April 2009,

    FINRA Is Supposed to Police the Market

    I have written extensively about FINRA’s ownership of Auction Rate Securities over the last few months. This morning Bloomberg reports, FINRA Oversees Auction-Rate Arbitrations After Exiting Market.

    The Bloomberg article (I am humbled by Bloomberg quoting me in the story) answers a number of questions I have raised, while also opening the door to other issues needing to be addressed:

    1. Was FINRA blinded – if not totally conflicted – in addressing the trading, selling, and marketing of Auction Rate Securities? Try 862 million times.

    2. Was FINRA lucky, prescient, or well informed in the timing of the sale of their own Auction Rate Securities? We may never know but given that their first “guidance for investors” was not published until after the market had totally frozen, they certainly did not provide much investor protection as is their mandate.

    3. I have also written, and Bloomberg highlights, that FINRA had money invested in hedge funds. In light of market developments, I think the public has a right to know which hedge funds. Will FINRA release that information?

    4. I unearthed all the information of FINRA’s investment activities from its 2007 Annual Report published in April 2008. I am still waiting for FINRA to release its 2008 Annual Report and wonder why it seems to be delayed.

    5. As we move forward with likely regulatory changes for Wall Street, I believe the very nature of a self-regulatory organization funded by the banks it is charged to oversee presents massive conflicts of interest. This specific situation of FINRA’s investment in ARS is indicative of those conflicts. Will Congress have the courage to address these conflicts and serve the public interest in the process?

    “To me it smacks of incompetence and negligence,” said Larry Doyle, who worked 23 years on Wall Street and runs a Web site called Sense on Cents. “Finra is supposed to police the market.”

    I view FINRA as akin to the palace guard. The question remains, Does The Palace Guard Have No Clothes?

  • Chris

    Yes, I remember reading that post. My understanding is that the SEC regulates FINRA. What is clear, FINRA had advanced notice of the collapse of that market. The SEC will not investigate, the courts continue to allow them immunity. The system is so broken, so corrupt. The only conclusion I can draw is that they all know it and just want to raid as many piggy banks as possible before it collapses.

  • Andrew

    A subject you may want to consider: Mutual Fund Pricing.
    Currently, open-end mutual funds, of which there are more of than common stocks, price once daily, at 4pm. The computation is arithmetic. Number of shares x closing price divided by number of shares in the fund outstanding.
    I posit that this is deceitful, at best, and that a “haircut” ought to be applied to the NAV. Why? Because we all know that no Fund can liquidate even a small percentage of its positions at last night’s closing prices, particularly in the event of a “Flash Crash” or other market disruption.
    In addition, fund managers can front-run their own clients by purchasing throughout the day, and charging the 4pm price to the new money committed. Or vice-versa. Some racket!
    All with the blessing of the SEC.
    Thanks for your hard work.

    • fred

      Why stop at NAV pricing. How about the excessive fees being charged in 401ks and variable annuities.

      I find it interesting that all regulatory agency investigations are being directed at hedge funds; who benefits from this focus?

      Weren’t some mutual funds or fund managers originally named in the scandal that ultimately took down Raj; what ever happened to those allegations?

  • Ron

    I feel wall street is no better than horse racing now. You know at the track that insiders know the horses, jockies, and who is being extorted to perform or not perform. Unless you are on the inside, you haven’t got a chance.

  • Adam

    In regard to your post on insider trading.

    I thought you might be interested in the findings from the most recent National Business Ethics Survey.

    We have also seen an increase in employees saying they’ve witnessed insider trading.

    If you’d like to see the full report, please go to and download the full report.

    Adam Benson

    Adam R. Benson
    Director of Public Relations
    Ethics Resource Center

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