Let's go after the real culprits MATTHEW LYNN April 2, 2010
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, Britain's Financial Services Authority was pursuing two investigations into alleged insider-dealing rings. Earlier this month, prosecutors secured a rare prison sentence against a former stockbroker.
Why now? For years, traders stood more risk of getting struck by lightning on the golf course than 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. Show trials are just a distraction from far worse problems elsewhere in the system.
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 go up or down won't make much difference.
Last week, the City was rocked by dramatic arrests. In one set of raids, executives of the hedge fund Moore Capital Management as well as Deutsche Bank and Exane BNP Paribas were arrested on suspicion of insider trading.
Separately, up to 11 people may face charges arising out of a probe that started at the London printers working for UBS and JPMorgan Chase.
This month, a former banker at Shore Capital and Dresdner Kleinwort was charged with insider trading along with his wife. A week before, the agency won an insider-trading case against a former partner at JPMorgan's Cazenove unit.
So why this sudden increase in law enforcement? For years, insider trading wasn't a largely victimless crime, as opponents of the laws have argued. It was mostly unenforced.
Many reckoned we had more chance of seeing England lift the soccer World Cup before we saw anyone serve time in prison for insider trading.
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.
But surely, there is something more troubling at work. After the credit crunch, the public mood turned against markets and the people who work in them. Regulators may be cracking down because they sense the public wants to see bankers, brokers and fund managers jailed.
But the witch-hunt is overdone. Trading a stock ahead of a company announcement is much less damaging than inflating a balance sheet, loading it with subprime debts, and then getting taxpayers to pay billions to the bankers who created the mess.
Who is more guilty: hedge-fund managers who get ahead of the game, or the regulators who failed to notice financial institutions were built on foundations so flimsy that they collapsed as soon as the market turned down?
If people are going to be punished for the financial crisis then we should focus on the real culprits, not just a few scapegoats.
