Straight and Narrow

Is everyone out there crooked?

That’s what I wondered when I read the recent news about Galleon Group and the analysts, traders, consultants, managers, and lawyers that have been accused of insider trading. I’m stunned at the extent of this conspiracy.

To recap: numerous insiders at firms like Intel, Google, and Hilton would tell friends what was happening before it was public, in terms of earnings, mergers, or other material information. Their friends would trade on that information and tell a few others, like some of the folks at Galleon, to do the same. So far, the scandal involves over $53 million.

It goes without saying that purloining confidential information and trading on it is immoral, unethical, and illegal. While everyone is entitled to the presumption of innocence, if these folks are guilty they should get rooms right next to Bernie Madoff. One of the accused is an attorney from the white-shoe law firm Ropes & Gray.

So is everyone besides you and me on the take? My gut instinct is no. If everyone were cheating the system, there wouldn’t be any system to cheat. Call it the paradox of theft. Crime only works when there are enough non-criminals to victimize. And while these folks tried to cover their tracks, personal betrayal has always been the main reason these conspiracies fall apart.

Like the thief who ran off in the night with a stolen pair of flashing sneakers, these guys leave flaming trails behind them. The biggest remaining question is, how many are left?

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

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