On the Insider Trading Front

What is it about non-public information that is so difficult to understand?  This week alone – 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 “Wealth of Nations” fame) testified at Raj Rajaratnam’s insider trading trial that the firm’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.  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.  Keep your head down and do your insider trading, eh? Those at one firm had their suspicions about Mr. Kruger, “He was living large for an associate.”  Important safety tip:  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.  You may have crossed a few ethical lines when mom participates unwittingly in your stock transactions. 
  • 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.  It’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.  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:  This stuff comes out – the variable is time.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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