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Sunday, May 20, 2012

Is Insider Trading a Wall Street Epidemic?

Is criminal insider trading out of control in America's financial community?

Insider trading, the practice by which some people trade on material non-public information about a company whose stock trades publicly, in violation of their duty not to disclose or use (or to obey a blackout or quarantine forbidding its release until a specified time and date), can seriously distort the so-called rational market and allow those "in the know" to have an unfair advantage over everyone else in the stock market.  In short, insider trading allows its perpetrators to profit at the expense of whomever was on the other side of their transaction.  (This is why the commentators who claim insider trading is victimless have it wrong.)

This New York Times report details how some people in the financial industry believe that insider trading has become institutionalized, and that the Department of Justice and Securities and Exchange Commission are ineffective in their efforts to deter, uncover and prosecute insider trading and other abuses.  The trail of events whereby the former Lehman analyst and whistleblower (and apparent victim) has now lost his career in the industry bears careful reading.

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