Insider Trading Redux

Insider trading. Just terrible. That folks would use what they have learned to their personal benefit. Imagine. And that we would tolerate such filth in a selfish, capitalist society is almost beyond comprehension. So I have an idea. Those in governments who enforce the rules against insider trading should have to explain publicly (not just to insiders) their parameters for deciding who to investigate and how. Bankruptcy Judge Allen Gropper, presiding over the Northwest bankruptcy, seems game (see below).

As I imagine it, whole swaths of trading activity go completely unnoticed by the authorities, even though the activities could be described (at least by us amateurs) as "insider trading". For example, hedge funds, particularly those that invest in emerging markets, have all but perfected the art of buying and selling securities in advance of, or on the heels of, significant events that they themselves drive or create, sometimes in cahoots with management of the companies that issued the securities. These events can materially alter trading prices, and those who drive the events can profit nicely since they know when the events will happen or when they will end. It's so easy, any average investor (or Rooney soldier) can try it. And the authorities are blissfully unaware, right?

Not so much, one would think. At least if one considers the ivy (and better) qualifications of the regulators. But the lowest hanging fruit for our esteemed regulators seems to be those stories that involve traditional features like management trading or big broker-dealer information leaks. Or disposable cell phones and other made-for-movies sex appeal. The fact that our retirements are these days heavily and increasingly counting on emerging markets yields, which can be masterfully and unaccountably driven by hedge funds, is much too dull - or too important? - for now.

Judge Gropper made an interesting move this week, ruling that members of an ad hoc committee of distressed investors in Northwest's shares (is this an emerging market?) have to disclose their holdings and their purchase prices. Such disclosure is anathema to the secretive hedge funds, who thrive on information about others and who abhor sharing information about themselves. Sharing information about their investments and investment strategies would, after all, reveal more about the event-driven aspects of their business, making it more difficult.

Judge Gropper has taken a reasoned, if uncomfortable and debatable, stand on an issue that may be more core than folks appreciate. Will his Federal brethren be able to take similar steps? I would guess not, but hey, why not hope? After all, this place is "for the people" too, no?