SEC Illegal Inside Trading Case

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ymh_ymh_ymh's picture
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"The Butler Did It"
http://www.sec.gov (see litigation section for yesterday)
Also see articles in the NY Times and NY Post (business section):
http://www.nytimes.com
http://www.nypost.com
 
FD: I don't "do" penny stocks. No comment on whether LM or SWS get taken out sometime this year, either.

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ymh_ymh_ymh wrote:
"The Butler Did It"

That is an interesting story, but it treads on an area that I have always found curious.
The reality is that nobody was harmed by the butler, so I am wondering what the big deal is.
He bought 5,000 shares for 12 cents.  OK, somebody sold them to him, and we have to assume that the seller wanted to sell them or they would not have been offering them for sale.  They got their price, so where is the foul?
I realize that the image of the honesty of the markets is in play, and the "We have to be able to trust......" idea is valid.
However, in this case--like many similar--the SEC consumed countless man hours and countless dollars to catch a $48,000 illegal profit.
I am not sure that the image of the industry is best served by having stories like this hitting the media at all, nor do I think that it is a good return on investment when the dollars spent versus dollars involved is considered.
An agency that is zealous in the pursuit of butlers but seems to be blind to penny stock pump and dump scams has its priorities all screwed up.

ymh_ymh_ymh's picture
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The only reason Marc Schonfeld and David Rosenfeld were told to pursue this "cold case" is Senator Specter got all over Linda Thomsen's fanny yesterday. Schonfeld and Rosenfeld did NOT tell me this but I am pretty good at connecting the dots.
Illegal inside trading is not cool. Would I waste my time chasing down some butler in Texas who loaded up some penny stock if $48K is all he made? Probably not, but then again, it's not every day you get to nail an Estonian investment bank.
The "victims" in inside trading cases are those who didn't get in on the inside skinny. Poor Martha Stewart served hard time over IMCL and Sam Waksal's still in jail. Sam got sent for illegal inside trading. Martha's time was for lying (obstruction of justice). Had she fessed up right away and got her checkbook out she would have been just fine.
If the SEC paid more attention to penny stock pump and dump action they would have caught that butler a lot earlier, I agree. The SEC is not manned or funded well enough to police penny stock pump and dump securities, boiler rooms, bucket shops, or stock promoters.

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ymh_ymh_ymh wrote:
If the SEC paid more attention to penny stock pump and dump action they would have caught that butler a lot earlier, I agree. The SEC is not manned or funded well enough to police penny stock pump and dump securities, boiler rooms, bucket shops, or stock promoters.

I don't read the butler case as a penny stock fraud at all.
My point is that if they spent less time worrying about a victimless crime and more policing real losses we'd all be better off.
I disagree that the "victims" in cases like the butler are those who do not know, and therefore do not get to take part in the insider trading.
If that were true it could be argued that the true victims in a bank robbery are the rest of us who didn't get a chance to rob the bank too.
Other than the Wall Street's reputation for honesty--which is sort of a mirage anyway--there really is no victim in the butler story.  Well, except the taxpayers who spent far more going after the butler than the butler's ill gotten gain--or the penalty which, by law, can be no more than triple the ill gotten gain.

ymh_ymh_ymh's picture
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The taxpayers don't pay too much attention to how their money's being spent, unfortunately. On the butler, technically, he had a fiduciary obligation via his employment contract and they'll probably be able to make this case stick. Inside trading cases are very difficult to prosecute which is why you don't see too many perps going to the big house.

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ymh_ymh_ymh wrote:The taxpayers don't pay too much attention to how their money's being spent, unfortunately. On the butler, technically, he had a fiduciary obligation via his employment contract and they'll probably be able to make this case stick. Inside trading cases are very difficult to prosecute which is why you don't see too many perps going to the big house.
It is also very difficult to prove that a butler would even know it was illegal.  A great many people figure that that's what it's all about--hearing something early and acting on it.
I doubt the butler was warned by his employer to never transact a stock transaction based on something that was read on a fax.
I know that the SEC obtains trade blotter activity reports for any stock that makes spectacular moves such as in the butler story, but I'm surprised that they became interested in a $600 trade.
It must have been the only trade in days making it easy enough for a lazy bureaucrat to check.

ymh_ymh_ymh's picture
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I think why he got popped has to do with Specter telling Thomsen he wants "indictments, convictions, and JAIL time" on a few other pending cases.
I didn't see his employment contract to see if it said, "thou shalt not trade on any information you happen to come by during your employment stint, here."
 
 

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