Wisdom From A Different Yogi...

My Regulation of International Markets class engaged in a lively discussion today.  The topic was insider trading - not the frequency, the prohibitions, or the penalties, but the cause.  The varied theories shared by the 2Ls and 3Ls served as testament to how little of which we can be sure concerning the crime that perpetually tops the business regulator's public enemy list.

Is the cause simple greed?  From Martha Stewart to the notorious "Yuppie Five", numerous cases belie the notion that the violation is triggered by the desire for more or easier money.

Thus, is the desire to become a "player" as strong as Oliver Stone would have us believe?  It's truly frightening to think that, after 50+ years of criminalization, market cheating is so readily mistaken for status or competitive advantage.

Separately, is insider trading motivated simply by custom or practice?  Those of us who have spent time on stock exchanges Floors are consistently impressed by how much is dictated by simple routine.  And as the Specialist cases revealed, the young trader may blindly adopt the tendencies of the more experienced around him.

Ultimately, is the violation unavoidable?  Years ago, a student summed up the SEC's "abstain or disclose" rule as effectively requiring someone to stand on a track while the train arrives.  The students polled today noted that in so many areas of life, knowledge is power, and secrets cannot be kept.

Personally, I found my thoughts returning to the various SEC officials I've heard over the years who remind that, although the crime shall always be with us, that's no reason to lessen its punishment.  Parallels are inevitably drawn to prostitution and drug dealing, both of which continue unabated despite a society's best intentions to combat them.

This may be so, but with scant SEC resources, a globalized market with non-harmonized rules, and yet another anti-insider trading crusade underway, I sure wish we'd see more research as to what primarily motivates an educated professional to risk career, fortune, and/or liberty.  Methinks it's all too often the desire to prove one's self smarter than the average bear (or bear's self).

---JSC, 12/28/10