Molecule Software Blog

The Molecule Software ETRM/CTRM Blog

Insider Trading - A Hobby for the Masses?

The SEC and DoJ have been prosecuting insider trading with fervor and have made it a priority. Headlines about Raj Rajaratnam or Carl Icahn over the past few weeks show that they are taking these cases seriously. They even hired the awesome data analysis firm, Palantir Technologies, who has helped with human trafficking and other cases to help catch illegal trading in its tracks. But is insider trading even surprising to discover anymore?

Professors from McGill & NYU have investigated insider trading activity on equity options prior to M&A announcements and just published their study. The not-so-shocking truth is that everyone seems to be doing it. Sadly, a quarter of all public company deals involve insider trading in some capacity, and they conclude that the SEC has only litigated about 5% in the nearly 2000 M&A deals they studied. How is this becoming a norm? And how do we stop it?

While it does bring some sense of personal justice to prosecute industry stars like Raj Rajaratnam who has worked his way through famous funds like SAC Capital and Galleon -- what about all the corporate insiders who are giving the tips in the first place? How and when will these tip-givers be served with a good helping of justice?