Hot on Wall Street's Insider Trading Scandal

by John M. Curtis
(310) 204-8700

Copyright November 21, 2010
All Rights Reserved.                                

           Cracking the cosmic egg, a federal grand jury in Manhattan looks into what everyone knows, turning a blinds eye to Wall Street’s practice of insider trading.  Insider trading costs share holders untold billions, reaping big rewards for Wall Street insiders lucky enough to know rumors before it turns to news, the difference between buying and selling.  Federal investigators are trying to determine whether or not Mountain View-based Primary Global Research LLC COO Phani Kumar Saripella gave Wall Street hedge and private equity funds insider information.  Federal investigators also want to find out whether Goldman Sachs leaked personal info affecting share prices of various technology companies, including mergers, acquisitions and personnel changes in the health care and technology business.  Insider info gives traders an unfair advantage affecting share prices.

            Recent revelations about how Goldman Sachs, Wall Street’s last standing investment bank, created risky derivative investments, sold them to clients and knowingly contributed to the bearish plunge in the market.  Creating bad investments, knowingly selling them to clients and shorting the investments to profit from market downturns raises disturbing questions about ethical standards by Wall Street’s biggest investment houses.  Any check of Wall Street’s ups-and-downs tells you that someone gives the nation’s biggest funds the insider information when to buy and when to sell.  Secret networks of public relations specialists, i.e., corporate journalists, strategically leak to the wire services to provide the credible excuses for the sell-off or buying frenzy.  Cable news networks like CNBC or financial newspapers like the Wall Street Journal give excuses for the buy-or-sell signals.

            While Wall Street goes about its business, individual investors watch stock portfolios vacillate like the weather, helping to secure bad investments.  Today’s grand jury examines only the tip of the iceberg with respect to Wall Street’s so-called insider trading.  Wall Street’s policing agency, the Securities and Exchange Commission, occasionally fingers small players like Martha Stewart, while letting off the hook Goldman Sachs for orchestrating daily trading activity.  Singling out small players, like Broadband Research LLP’s Richard Kinnucan, for sending an Oct.26 e-mail addressed to hedge funds SAC Capital Advisors LP and Citadel Asset Management and mutual fund companies Janus Capital Group, Wellington Management Co. and MFS Investment Management giving tips about certain investments.  Fingering Kinnucan without his Wall Street puppeteers gets nothing done.

            Wall Street’s intimate connection to the U.S. economy involves providing capital to the publicly traded companies.  Without Wall Street’s cash machine, American businesses don’t have the resources to expand payrolls.  While there’s always a vicious cycle to recessions, markets must consistently rise before companies have the resources to gamble on expansion.  Demand in consumer spending—accounting for about two-thirds of Gross Domestic Product—only comes from employment.  Given this reality, Wall Street must do its part to rally the economy out of recession.  Federal Reserve Board Chairman Ben S. Bernanke can only do so much to stimulate the economy out of recession.  He’s received criticism, especially from Europe and Asia, for his attempt to buy up $600 billion in U.S. treasuries.  He’s defended his actions putting the onus back on the Chinese to revalue its currency.

           China has no intention of augmenting the value of yuan, forfeiting manufacturing to other nations.  European and Chinese officials certainly don’t want a more affordable U.S. dollar to take away exports.  Bernanke knows that there’s no quick fix to the economy other than helping private sector businesses grow.  President Barack Obama must work with the Congress to do their part to create pro-business tax policies that also stimulate the economy.  Working in concert with the Fed, the White House and Congress must strike the right balance to promote private sector job growth.  Wall Street scandals have the effect of frightening off investors and delaying economic recovery.  Instead of only seeking fast profits, Wall Street must look at the bigger picture to promote long-term growth.  Short-selling by unregulated hedge and private equity funds shoot the economy in the foot.

           Wall Street indictments scare off investors, usually triggering knee-jerk sell-offs by hedge fund traders, turning an otherwise bullish market in the bearish direction.  White House officials must work with the Fed, Treasury Department and SEC to provide a pro-business environment to help grow the economy.  Wall Street’s market-makers like Goldman Sachs must show some responsibility for the insider scandals that give hedge and private equity funds license to exploit any and all insider information to create rumors, disseminate false information and promote phony impressions of otherwise shaky financial businesses.  When the dot-com bubble crashed in 2001, taking the Nasdaq down from 5,000 to about 1,200 in March 2003, Wall Street experts blamed the SEC and the nation’s biggest investment banks.  Almost 10 years later, the SEC and Goldman Sachs has yet to take any responsibility.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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