Insider-trading cases are like London buses: You can wait for ages without seeing any at all. And then a whole bunch will come along at the same time.
Last week, the UK Financial Services Authority was pursuing two high-profile investigations into alleged insider-dealing rings. Earlier this month, prosecutors secured a rare prison sentence against a former stockbroker.
Why now? For years, traders in the financial markets stood more risk of getting struck by lightning on the golf course than they did of being arrested for swapping a few share tips on the same fairways. In reality, the regulators are responding to a public mood that has turned hostile to bankers. And they are covering up their own inadequacies.
The real wrong-doers in the City of London are surely the politicians and regulators who allowed the country to be virtually bankrupted by an overblown, risk-hungry banking industry. A few brokers and hedge-fund managers getting an inside track on which stocks or bonds might be up or down tomorrow won't make much difference.
Rounding them up
The crackdown on insider trading by UK regulators is harsh enough to make everyone in the markets feel nervous. Last week, the financial district was rocked by some dramatic arrests. In one set of raids, executives of the hedge fund Moore Capital Management LLC as well as Deutsche Bank AG and Exane BNP Paribas were arrested on suspicion of insider trading.
This month, Christian Littlewood, a former banker at Shore Capital Group Plc and Commerzbank AG's Dresdner Kleinwort, was charged with insider trading along with his wife. A week before that, the agency won an insider-trading case against Malcolm Calvert, a former partner at JPMorgan's Cazenove unit.
So why is London witnessing this sudden increase in law enforcement for insider traders? For years, insider trading wasn't just a largely victimless crime, as many opponents of the laws have argued. Of course, there may be some simple reasons.
The law is the law, whatever you may think of it, and the regulator's job is to identify anyone who breaks it. If they have finally decided to devote more time and resources to making sure the rules are obeyed, then they are to be commended.
The regulators may well be getting tougher on financial crime because they sense the public wants to see bankers, brokers and hedge-fund managers sent to prison. Or perhaps the agency is trying to prove its mettle to the Conservative Party, which plans to abolish the FSA if David Cameron wins power.
In any case, the current witch-hunt is overdone. Making a few pounds by trading a stock ahead of a company announcement is less damaging than inflating a balance sheet, loading it up with subprime debts, and then getting taxpayers to pay billions to bankers who created the mess.
If people are going to be punished for the financial crisis of the last few years — which would be appropriate — then we should focus on the real culprits, not just a few scapegoats.
