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Weird Tales of Insider Trading

Oh, the lengths to which people will go to gain an inside advantage in the stock market. This amusing article in Compliance Week offers a glimpse of some of the far-fetched schemes that have entrapped those intent on coming up with ways to beat the system.

According to the article, back in the 1980s one popular inside trading technique involved stealing advance copies of Business Week from printing plants, distributors and even post offices, to trade ahead of the market-moving recommendations in its “Inside Wall Street” column. Not a good idea -- nearly 30 people have been sued by the SEC for trading on material, non-public information procured in this fashion.

Other techniques that don't work include (a) purchasing securities, then creating fake news releases to spike trading to make sales more profitable and (b) attempting to bribe paralegals at large firms to provide confidential information about upcoming mergers.

Of course, there are some situations in which it's unclear whether the conduct would trigger insider trading charges. For example, for now, it remains perfectly permissible for people to hire investigative journalists to ferret out negative, material, and non-public information; sell short based on that information; and then publish that information, causing the price of the stock in question to drop. And in fact, that was a "business model" used by Mark Cuban, the dot-com billionaire who is now the subject of an SEC civil suit for insider trading.

Posted by Carolyn Elefant on December 8, 2008 at 04:22 PM | Permalink | Comments (0)

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