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August 22, 2003

Insider Trader Convicted --
And He Wasn't Even an Insider

Today's National Law Journal has a story that illustrates yet again how vigorously the SEC goes after people it thinks are trading on on "inside" information. This one involves a stock broker who was convicted by a jury of insider trading.

The broker had learned that certain companies were about to be mentioned in the "Inside Wall Street" column of a business magazine. He got this information second-hand, from a colleague who in turn had a contact at the business magazine. The SEC got suspicious when the stock prices of companies mentioned in the column started going up before the publication dates.

I thought four things were particularly interesting about the story: First was the reminder that the SEC monitors stock prices to sniff out possible insider trading. Second, the broker wasn't an insider at any of the companies whose stock he traded. Third, the guy ended up spending about $75K in legal expenses and is now working as the manager of a donut shop -- honorable work, and nothing to be embarrassed about, but probably not what he expected to be doing for a living. Finally, the judge apparently wasn't totally sure that what the broker did was a crime, but he felt that he had to sustain the conviction; then, when the SEC asked that the broker be ordered to disgorge his profits (about $5K), the judge said "enough is enough," and awarded the SEC $1. (The story doesn't say whether the broker will face any prison time.)

August 22, 2003 in Criminal Penalties, Securities law, SEC regs / actions | Permalink

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