Contrasting opinions from Marty Robins, attorney and adjunct law professor at Northwestern University School of Law and DePaul University College of Law, as well as a frequent commentator on Corpgov.net.
As a retail investor, I’m told that I should be happy about the Rajaratnam conviction on various charges related to insider trading activity. The prosecutor in the case tells the world that this behavior “cheats the ordinary investor.” I’m also told that the insider trading crackdown which we are now seeing ‘levels the playing field’ between professional and ‘ordinary’ investors. “In scoring their biggest insider-trading victory in a generation, regulators have a message for a nation of nervous individual investors: When it comes to information about stocks, the playing field is getting a little more level.”
I don’t follow this logic and am concerned that this crackdown is misguided and perhaps counterproductive… To actually benefit retail investors, and the economy as a whole, we need governmental efforts which focus on causing companies to be better run and avoid the sort of debacles which have plunged our economy into recession twice during the last ten years… Until such matters are front and center, stopping insider trading will be nothing but an economic sideshow. (Marty Robins: Tell Me Why I Should Care About Ending Insider Trading, Huffington Post, 5/13/2011)
As one of the trial witnesses put it: “Research is sort of like doing your homework ahead of time. Getting the number is more like cheating on the test.”…
The playing field may never be truly level on Wall Street, but the government is now in a position to patrol more aggressively the grey line between financial research and financial crimes. The courts will be more willing and able to make wiretaps available to the Securities and Exchange Commission. Concern that federal agents are listening should be an effective deterrent and reinforce the idea that people need to be very careful about how they deal with information that has financial value. As the prosecutor put it in the press conference announcing the original arrest: “Greed sometimes is not good.” (Timely strictures on the audacity of greed, FT., 5/16/2011)
Personally, I’m all for fairness. Insider trading may be a “sideshow” compared to better corporate governance but it is still wrong.