Stock Investing Bank Of America Morgan Stanley Ubs And Bear Stearns Swept Up In Latest Insider Trading Scandal
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Major Insider Trading Scandal: Top Firms Entangled
Overview
In one of the largest insider trading scandals in 20 years, key players from Bank of America, Morgan Stanley, UBS, and Bear Stearns have been implicated. Let's explore this unfolding story.
A Brief History of Insider Trading
Insider trading, while illegal in the United States, is permissible in some countries like England. Before President Franklin D. Roosevelt's leadership in 1933, insider trading was legal in the U.S. Roosevelt, aiming to restore trust after the Great Depression, established the Securities and Exchange Commission (SEC) with a mission to curb such practices. Ironically, Joseph Kennedy, a notorious insider trader, was appointed as the first SEC Commissioner. He initiated regulations to outlaw his once-profitable practices.
The Notorious 1980s Scandal
The 1980s saw one of the most publicized insider trading incidents when Ivan Boesky, a prominent arbitrage specialist, was caught. His insider source was Dennis Levine, a banker at Drexel Burnham Lambert.
The Current Scandal
This recent scandal involves two main schemes, generating $15 million over five years:
1. Morgan Stanley and UBS Connection:
- Mitchel Guttenberg from UBS used his inside knowledge of research upgrades and downgrades for financial gain, selling information to David Tavdy and Erik Franklin, who profited by $4 million.
2. Morgan Stanley’s Internal Breach:
- Randi Collotta, a lawyer in Morgan Stanley’s compliance department, passed merger and acquisition tips to her husband, Christopher. He then sold this information, earning substantial amounts.
Erik Franklin, a Bear Stearns hedge fund client, engaged in daily heavy trading, concealing illicit profits. Communication was discrete, employing pseudonyms, disposable phones, and secretive meetings at Grand Central’s Oyster Bar. Cash transactions ensured no traceable financial records.
Ongoing Investigation and Implications
The investigation has led to 13 arrests, with 11 facing SEC charges and four already pleading guilty. Hedge funds involved are notably challenging to regulate due to lax compliance standards compared to brokerage firms, raising concerns about further arrests.
Hedge funds, managing approximately $1.4 trillion with significant leverage, relentlessly pursue performance improvements. The pressure to deliver stellar results can drive individuals to unethical practices like insider trading. With around 9,000 largely unregulated hedge funds, the potential for scandal persists.
Additionally, hedge funds are increasingly financing political campaigns, potentially compromising the oversight if conflicts of interest arise among policymakers.
SEC’s Role
The SEC detected unusual trading activities linked to Adobe Systems' acquisition of Macromedia and ProLogis' acquisition of Catellus Development in 2005. These irregularities led to uncovering the conspiracy. More arrests are anticipated as the investigation deepens.
In conclusion, this case underscores the risky interplay between high-stakes finance and ethical boundaries. With hedge funds at the center of this storm, regulatory vigilance is more crucial than ever.
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Richard Stoyeck
Visit: [Stocks at Bottom](http://www.stocksatbottom.com)
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