metoo105 (31.19)

Insider Trading Gone Wild

April 17, 2011 – Comments (2) | RELATED TICKERS: WH

After swooning down to $1 post anti-dumpting duties, then stabilizing more recently around $1.30, WSP Holdings (NYSE: WH) a Chinese manufacturer of steel pipe has rocketed to $1.60 in a week's time on no news at five times the average daily volume just one week before end of year earnings will be announced. This smacks of the kind of suspicious trading activity that one would think ought to be routinely investigated by the SEC but is not. While it's of course possible that some punter with a fat roll wants in before earnings are released that possibilitiy seems sufficiently unlikely that it ought to trigger at least some kind of cursory investigation should it later turn out earnings turn out to be higher than expected (as I now think seems extremely likely). The bottom line is that despite the unlucky few who are convicted each year for insider trading, there is a whole lot more of it going on than anyone particularly cares to think about.

Moreover, many of the folks who end up in jail are the wrong ones. Despite my distaste for Martha Stewart, I am shocked and dismayed that hers was taken as a test case on a novel theory of insider trading culpability. I believe that the Galleon chief whose case is the news today is far less culpable than the McKinsey head who actually violated client confidences though I am nearly certain that the Galleon chief will go to jail for twenty years while the McKinsey chief will likely get a suspended sentence. Perhaps even more troubling is the government's case against a handful of the poor analysts at Primary Global Research, who were quite likely been nabbed for something that they didn't do. 

It seems quite clear to me that the government's focus in prosecuting insider trading cases is to go after big fish with the hopes of making the news as much as possible. This general deterrance approach is ineffective and rarely delivers the just outcome. I would love to see the government get its act together so that suspicious trading patterns would be automatically recognized by computers then investigated by a dedicated group of officials at the FBI who were trained specifically to deal just with this kind of crime. From what I gather, the FBI does not even have agents who are dedicated exclusively to insider trading cases. I used to send emails to the SEC.gov website when I spotted suspcicious trading activity, but now I don't even bother as it's not clear to me that anyone reads the mail.

How many among you see suspicious trades on a regular basis? All of you??