Insider Trading

The London Paper  –  27 Nov 2006

Why do people take an instant dislike to bankers? I’ll tell you why … because it saves time. And if there’s one thing that really gets people’s goat about us Cityboys it’s insider trading. It upsets ‘civilians’ that a bunch of jokers choose to supplement their already hideously large pay packets by trading illegally in shares on information that only they are privy to. It also confirms the general public’s absolutely valid suspicion that the City is a close-knit club dedicated to making its members as much cash as humanly possible as quickly as possible.

Last week an analyst at my bank brought to my attention several statements that companies in his sector had recently made. All these companies (Scottish Power, Viridian, awg) had experienced an extremely rapid rise in their share price. Hence, they had been obliged (probably by the Takeover Panel) to reveal publicly that they had received a ‘preliminary approach’ by another company wanting to buy them. Any dramatic share price appreciation like this results from an unusually large amount of stock being bought in a short space of time. So every time a company makes this kind of announcement (and they’re frequent) it suggests that there has been some serious insider trading going on. If there were any justice in the world every single person or firm whose buying had pushed up the share price in the day or two before these announcements should be investigated by the Financial Services Authority.

However, there is a major problem getting evidence to convict insiders and hence the number of successful prosecutions can be counted on one hand. Even if the FSA had definite proof that a notoriously loose-tongued corporate financier involved in a specific takeover had a candle-lit dinner with some greedy toe-rag the night before the latter purchased shares in the target company it would be hard to get a conviction. If there were no witnesses or tape recordings how can it be proved that they talked about nothing more innocuous than which one of the Pussycat Dolls floats their boat? That’s why Martha Stewart’s insider trading conviction was the exception that proves the rule and why most insider traders can sit at home counting their ill-gotton gains as happy and innocent as O J Simpson.

Insider trading is like a German joke; it’s no laughing matter. Every time some scallywag uses his inside knowledge to make a fast buck the sucker he bought his shares off suffers as a result of no longer owning shares that would have benefited from the premium that a predator is willing to pay. Since the schmucks are often the people running your pension or ISA, these insider traders are stealing directly off you. Furthermore, these bad apples damage the City’s already battered reputation. It’s no wonder that when I go to certain dinner parties I find myself about as popular as a turd in a swimming pool – though coming to think of it that was the case long before I joined the City.

Thoughts ?

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