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"Insider Trading" is Back

Tags Legal SystemCapital and Interest TheoryMonetary TheoryPhilosophy and Methodology


The ancient transgressions of murder, pillage, bestiality, thievery, and rape still shout from the headlines. O Tempora, O Mores, as the ancients proclaimed in dismay a couple millennia ago: meaning what crummy people, what crummy times. They ought to read this morning's paper — they'd yearn for ancient Rome.

Then as now, the human heart is imperfect. But some crimes are more popular than others — and some are cyclical. They wax and wan like the tides. Jaywalking, for example, is way down as reported on the news. And guess what? Insider trading, that evil urge that mainly cursed the 80's, is back in the business news. Joseph Nacchio, ex CEO of Quest, is accused of dumping his shares because he knew the stock was heading as far South as Antarctica, where the only brokers are penguins. This does not make for market liquidity. There's a real conundrum here for those of us who hate government regulation, but realize that morality is as requisite to a civilized society as yeast is to bread.

Look backwards Consider how easy it is to judge the Enron Era crimes. Blatant, illegal, trickery. Execs cooked the books — dumped the stock; shareholders, employees, orphans, and widows wailed. From all this misfortune, Sarbones-Oxley sprung up like a giant toadstool. And as usual, the presumed cure may be a killer. A wayward accountant may be a white knight compared to twenty pounds of pepper and salt size regulations written in governmentese. Equity positions held by shareholders, employees, orphans, and widows may crumble.

Even cloudier was the Martha Stewart case. The state says go to jail and don't pass go because an insider suggested you sell? That's criminal? Then so is buying a discounted Toyota because your cousin, the Toyota dealer's accountant, told you confidentially that there's a lime green Corolla on the lot that they gotta sell in the next two days or lose the factory rebate. And he only told YOU. Any difference between the grinning driver of that "stolen" Toyota and Martha, who dumped her Imclone due to whispered, exclusive info? Not in my eyes. Yeah, I know she lied to the government, but the catalytic agent — the net used to scoop up the gangstress was the "Insider trading" charge.

Think that situation poses a ethical conundrum? Go back to the 80's — a farago of greed, stupidity, corruption, revolving around Milkin, Boesky, Drexel Burnham and a couple trillion bucks worth of hi-yield "paper" risky as a 3-pack a day habit. This man, Milkin, literally created a new form of financing or at least popularized it. Consequently, new corporations thrived like clover in cow patties. In one corner he created wealth for "the street"; corporations, employees, and shareholders. In the other, he cheated corporations, employees, and shareholders. His ethical lapses ranged from stripping warrants from new junk bonds and bestowing them on him and his loyalists (instead of customers) to "parking" stock in order to disguise its true ownership, a common practice that previously only provoked a wink from the SEC.

A significant chunk of the bond world was subject to his manipulation. He was Midas and everything he touched went golden. One year he kept the entire bonus pool of his department — 500 million. He suborned his associates, cheated Drexel, his employer, and deceived his associates and clients. By anybody's definition he had his faults. He fell — a victim of the government's ultimate nuclear threat — Racketeer Influenced Corrupt Organization legislation (RICO). Were his activities immoral? Illegal? Should they have been subjected to corporate, federal, SEC governance or the conscience of Michael Milkin? Do such crimes call for Sunday School classrooms on Wall Street or regulation? It's a trillion dollar question — far beyond the ken of this kibitzer. Go ask your spiritual consultant — unless he works for the SEC.

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