What is it about non-public information that is so difficult to understand?Â This week alone â€“ April 1- April 8, we had a heck of a run:
- Adam Smith, formerly an analyst and trader with Galleon (and no relation to Adam Smith of â€œWealth of Nationsâ€ fame) testified at Raj Rajaratnamâ€™s insider trading trial that the firmâ€™s owner relied on a network of consultants, i.e., employees, at companies for advance reports on everything from acquisitions to earnings adjustments
- Corporate lawyer Matthew Kruger was charged with participating in a 17-year insider trading scheme that netted about $32 million in profits for Mr. Kruger (the source of the mergers and acquisitions info on the companies), a go-between, and trader Garrett Bauer.Â Ironically, even as Mr. Kruger was allegedly passing along non-public information about pending acquisitions and mergers, he was suing one of the four law firms he worked at for discrimination.Â Keep your head down and do your insider trading, eh? Those at one firm had their suspicions about Mr. Kruger, â€œHe was living large for an associate.â€Â Important safety tip:Â Any time an associate working in mergers and acquisitions is living large, do some checking.
- Cheng Yi Liang, a chemist and a 15-year employee of the FDA, is alleged to have made $3.6 million (along with his son) by basing his transactions on advance notice of FDA approval actions. Mr. Liang funneled the money through 7 bank accounts, one of which was in the name of his 84-year-old mother who lives in China.Â You may have crossed a few ethical lines when mom participates unwittingly in your stock transactions.Â
- Last, but not least, Warren Buffett’s second in command and heir apparent, David Sokol, exited Berkshire Hathaway after evidence emerged that he had purchased Lubrizol shares two months before he completed a $9 billion deal for Berkshire to purchase Lubrizol. Â Itâ€™s not clear that Mr. Sokol was capable of hornswoggling the Oracle of Omaha into buying a company to help him on his private largesse.Â Still, there is something untoward about a second-in-command looking for deals for his company seizing the moment before his company does. We shall see if the SEC sees something more than the untoward.
- Two thoughts:Â This stuff comes out â€“ the variable is time.