Insider Trading Becomes SEC’s New Poster Child

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The press and Congress have been unkind to the SEC for the last two years. It has been blamed for missing the trading activity of Bernie Madoff and for not properly regulating the banking and financial system. The SEC has countered by saying that it does not have adequate staff to cover all the territory that it is asked to ride herd on.

The SEC has not had any real success and the adulation that accompanies that since the options dating scandal that went as far as looking into the business practices of Apple (NASDAQ:AAPL) and its CEO Steve Jobs. The CFO of Apple lost his job in the process and the SEC was viewed, at least temporarily, as an agency with teeth.

The SEC has found a new cause which is likely to bring it a great deal of positive attention. It is scouring hedge funds for evidence of insider trading. It already has billionaire hedge-fund manager Raj Rajaratnam in its net. According to Bloomberg, the agency has been watching may other investors and is likely to bring many more insider trading charges in the weeks ahead.

Hedge-fund managers are not viewed with much sympathy on Main Street or in Congress. They have the image of  being greedy investors who push around money to make profits but do nothing to create jobs or wealth for the general economy. They are parasites, many in Washington say, feeding on the weaknesses in the financial system

A successful prosecution of Rajaratnam will put the SEC back in the good graces with the public that it enjoyed during the backdating and Enron scandals. The SEC will and probably should milk that for all it is worth. It means the hedge fund industry will be under the microscope until the agency can charge every last inside trader it can find.

Of course, it is something that the agency should have been doing all along

Douglas A. McIntyre

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