Proactive
Enforcement Paying Off
Last week, an executive with a global
pharmaceuticals giant headquartered in the U.S. was arrested for insider
trading. He allegedly earned “substantial profits” by trading stock options
using inside information about three companies his firm was looking to acquire
before they were sold.
Insider trading is just that: the
trading of securities or stocks by “insiders” with material, non-public
information pertaining to significant, often market-moving developments to
benefit themselves or others financially. These developments can include
pending mergers and acquisitions, anticipated earnings releases, and product
line developments.
The universe of people with access to
this non-public information is growing. It includes:
■Securities professionals (traders and
brokers);
■Corporate executives and employees,
along with employees of banking and brokerage firms and even contractors;
■Lawyers working with companies on
mergers and acquisitions;
■Government employees who misuse their
legitimate need-to-know position; and
■Even friends, family members, and
business associates who are tipped off about the information.
In addition to this insider knowledge,
all of these individuals have another thing in common: the obligation to keep
this information in the strictest confidence.
Historically, insider trading cases were
usually handled as isolated incidents where trading was based on a specific
instance of material, non-public information being provided.
And these cases have been challenging:
investigators relied on financial documents, phone records, and—more
recently—e-mails to determine when and how traders received the non-public
details. These criminal insiders work hard to thwart law enforcement—including
trading through multiple accounts, trading in others’ names, and using
disposable cell phones and prepaid calling cards.
But we’ve become much more proactive
these days…using intelligence as well as sophisticated techniques like
undercover operations to identify the most egregious offenders. We’ve been able
to link seemingly unrelated cases and uncover large criminal rings of insider
trading. And our new national Fair Markets Initiative will further focus our
insider trading efforts by prioritizing cases, enhancing collaboration with the
Securities and Exchange Commission (SEC), and increasing our emphasis on
intelligence to identify and dismantle insider trading schemes.
Our growing caseload reflects the wisdom
of our approach—we’ve had a 40 percent increase in insider trading cases over
the past year (see sidebar for recent case examples).
Coordination with our partners is vital
to this success. We work very closely with the SEC in a parallel law
enforcement and regulatory effort to ensure fairly operated financial markets.
In fact, we recently embedded an FBI agent with the SEC in New York.
The FBI also maintains a relationship
with the North American Securities Administrators Association—comprised of
state and provincial securities regulators in the U.S. and Canada—making
presentations, offering training, exchanging best practices, etc.
Increasing globalization has led some of
our insider trading investigations overseas, where our legal attachés use
existing relationships with their partners to follow up on leads. Individuals
engaged in illicit insider trading often funnel money through offshore
accounts, and overseas employees of American companies with operations abroad
could be just as susceptible to the lure of insider trading.
Insider trading has been a continuous
threat to U.S. financial markets and has robbed the investing public of some
degree of trust that markets operate fairly. Through our investigations, the
FBI is working hard to curb that corruption and help ensure fairness in the
marketplace.
Investigations
Paying Off
- New York hedge fund billionaire Raj
Rajaratnam was sentenced to 11 years in prison for his role in the largest
hedge fund insider trading scheme in history.
- Also convicted in that case was
Rajaratnam’s business partner and friend, Rajat Gutpa.
- Attorney Matthew Kluger was convicted
of stealing inside information from various law firms he worked for and
providing it to a professional stock trader in a 17-year scheme that netted
them millions.
- IBM executive Robert Moffat was
convicted of providing non-public information to a hedge fund employee in a
major insider trading scheme.
- A Philadelphia stockbroker who
received inside information from an executive with a public insurance company—a
fellow Alcoholics Anonymous member—was charged with insider trading.
No comments:
Post a Comment