“Gossip boys”: insider trading and regulatory ambiguity
| Date | 20 December 2013 |
| Pages | 29-43 |
| DOI | https://doi.org/10.1108/JFC-04-2013-0030 |
| Published date | 20 December 2013 |
| Author | Laura L. Hansen |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
“Gossip boys”: insider trading
and regulatory ambiguity
Laura L. Hansen
Western New England University, Springfield, Massachusetts, USA
Abstract
Purpose – The purpose of this viewpoint, case study analysis paper is to assist in understanding
how history repeats itself in the case of insider trading, even with regulatory intervention.
Design/methodology/approach – Qualitative methodology approach, using interviews of some of
the watchdogs of Wall Street (SEC, US Attorney’s Office) during the insider trading scandals of the
1980s. Key themes including ambiguity of money, regulation, and the networks of financial institution
professionals are discussed.
Findings – Findings suggest that regulation is difficult if nearly impossible, in the face of limited
resources and regulatory ambiguity.
Practical implications – This paper suggests a network approach to regulators, corporate decision
makers, and academics in order to understand the structure of insider trading conspiracies.
Originality/value – Continuesthe tradition of qualitative research in a niche of white-collar crime that
is more often approached with strict statistic analysis. Value is that the data are allowed to “speak for
themselves” and patterns of structure are allowed to emerge without prior biases of hypotheses.
Keywords Insider trading,Regulatory agencies, Regulatoryambiguity
Paper type Case study
Introduction
Insider trading has once again emerged, abate quietly, as a debatably ambiguous
crime, demonstrated by recent attempts to prohibit members of the US Congress from
capitalizing on finance and industry information that they have privy to, in advance of
public notice. Since the trial and subsequent conviction of Raj Rajaratnam (Gal leon
Hedge Fund Manager) for making approximately $45 million on tips from corporate
elites, plus the arraignment of Rajaratnam’s younger brother Rengan more recently for
similar charges (Bray and Rothfeld, 2013). This type of malfeasance is infrequently
pursued through criminal justice avenues, but rather generally handled through
legislative and civil court routes, as demonstrated by the whispers of alleged insider
trading on Capital Hill in Washington, DC (Mullins et al., 2010). It is timely to seriously
think about the relationship between insider trading, opportunity, and regulatory
practices. This was best demonstrated by the insider trading networks that formed
during the 1980s on Wall Street, a period of time when there was an increase in
mergers and acquisition activity (Hansen, 2004). Though decisively occurring during a
different economic climate, comparisons can be made with today’s scandals from a
standpoint of mechanisms, including corporate culture and regulatory agencies, which
have contributed to these types of crimes.
This case study concludes that the regulatory system is faulty, where some
are prosecuted and others get away with civil actions (e.g. Rajat Gupta at Goldman
Sachs) much as the regulatory systems that are expected to control all types of
underground, black market activities. Understaffed and held hostage by politics, the
Securities and Exchange Commission has inconsistency monitored financial markets
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Journal of Financial Crime
Vol. 21 No. 1, 2014
pp. 29-43
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2013-0030
Insider trading
and regulatory
ambiguity
29
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