I know it’s hard to feel empathy for bankers and Wall Street brokers, but Roger Parloff makes as good a case as anyone can for why falling into criminal behavior is easier for these folks than for others. (“The Gray Art of not quite Insider Trading,” by Roger Parloff, Fortune, 9/13, pgs. 63-67.) According to author, the government makes laws regulating financial transactions deliberately vague. Gray areas give the government the ability to decide what is and what isn’t criminal behavior after the fact. Playing “gottcha” may seem unfair but there’s a reason for it. Stephen Bainbridge, of UCLA’s School of Law, explains the government is vague because it’s afraid clarity will “’allow clever Wall Street types to figure out loopholes…’” By keeping the rules fuzzy, Congress “‘preserves wiggle room for the Security Exchange Commission (SEC) to respond to new types of fraud.’” (Ibid pg. 65.)
Unfortunately, ambiguity leads heartburn for many in the financial world. Here’s an example. A columnist for the Wall Street Journal regularly sold his research to a couple of traders before the information appeared in print. Eventually, he was caught and because he had misappropriated information that belonged to his employer, he was charged with insider trading (Ibid pg. 64-65). Fair enough. But the law was interpreted differently, when a hacker in the Ukraine broke into the computer records of an American health care company and read its financial reports. When he discovered the organization was losing money, he shorted the stock and made a fortune. He wasn’t charged with insider trading, however, because he wasn’t an employee of the firm. (Ibid. pg. 65)
And then there was the CEO of a business who gave insider information to a financial analyst. He knew the man would share the data with his clients, but this time, when he was accused of insider trading, the CEO called foul. His duty, he said, was to enhance the stock value of his company. Leaking positive information accomplished that. As he didn’t profit from the leak, he pled not guilty. The court agreed and he was acquitted. (Ibid, 65)
Given the grayness of the gray in high finance, it’s no wonder Martha Stewart spent a year in prison making cupcakes.
(Courtesy of www.glorioustreats.com)