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With No Outrage, Congress Should Stay Out Of Insider Trading Laws

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This article is more than 9 years old.

I challenge anyone outside of Wall Street to walk through their office today and ask, "What do you think about the Newman decision?"  The answers would probably range from, "Was it on Jimmy Kimmel last night, or was that the name of the referee who called goal tending in the UCLA v SMU basketball game?"

For the uninitiated, Newman was a court decision by the 2nd Circuit Of Appeals in December 2014 which overturned the convictions of Anthony Chiasson and Todd Newman.  The two men had been convicted and sentenced to prison (78 months and 54 months respectively) for receiving inside, confidential, information on publicly traded companies and then profiting on it through successful trades.  The convictions were overturned based on an opinion from appellate judges that the two knew of no benefit that the tipper (insider) received something of value in exchange for the tip.  Look, it gets complicated and it is even more complicated when you cannot identify a victim of insider trading other than someone who feels betrayed that they did not receive the information for their own trading benefit.

Now Congress wants to get involved and pass new laws that are meant to protect ... well I'm not sure who they would protect.  DealBook's Peter Henning wrote about Democrat congressmen and senators banding together to write new insider trading laws that will prevent guys like Newman and Chiasson from walking free. One of those senators is Robert Menendez, who many believe is on the cusp of answering to his own corruption indictment... I'll leave that for another blog.  Is the world less safe with these two guys walking free?  Is the world more safe since the closing of the two firms (Diamondback and Level Global) where they worked?  People usually have to take the streets before getting Congress to act on anything, but since Occupy Wall Street, who had no real agenda other than they missed the Capitalist boat, nobody has had much to say about further defining insider trading.  So what is the purpose of additional legislation and who is being protected by it?

Insider trading prosecutions have led to big headlines but they have done little to nail real criminal elements that plague our society.  There are no organized crime figures or citizens with long rap sheets involved in these alleged crimes.  Instead we find the Feds taking down bad-asses like Martha Stewart (love those sheets) ... Michael Milken (Caring Philanthropist) ... Rajat Gupta (humanitarian) ... Michael Kimelman (More known for being a good father than a hedge fund trader).  Even Dallas Maverick owner and Shark Tank cast member Mark Cuban was called a cheater by the Securities and Exchange Commission when it accused him of insider trading in a civil action.  Cuban won that case and recently filed an Amicus brief in support of upholding the Newman decision.

If you look at the 80+ people who either were convicted of or pleaded guilty to insider trading in the Southern District of NY over the past three years, you will find people who have lived lives that would be best characterized as honorable and responsible rather than criminal.  So why have we gone after these people as if they were members of a gang or some organized crime family?  Mainly because it is popular to bust rich, or perceived to be rich, people because the Feds were able to pin charges on only one guy responsible for the 2008 financial meltdown.  Hard to believe he was a sole actor.

There has to be something the nation is complaining about, worried about, that deserves congressional attention.  Living in Boston I would say fixing the potholes should be up there ...  cyber-crime should be a big one ... Ponzi schemes ... penny stock scams ...  but insider trading is not keeping anyone up at night.

The Newman decision is a good one and additional legislation, which would also have to apply to those who write it, will probably do more harm (accusing innocent people) than good (cleaning up Wall Street).