Everybody who’s ever invested in the stock market has heard a “sure thing” tip that is bound to make you rich.
Let’s say you hear that investors from Abu Dhabi are about to invest in a computer company. So you buy stock in the company, hoping the price will rise when the Arab investors make their purchase.
If that hot tip came from an insider who told you about the Arab investment before the news was public, both of you could go to jail for “illegal insider trading.” But if you figured out the Abu Dhabi investment because you saw a fleet of limos visiting the computer company’s headquarters, well, then you don’t go to jail. You might get rich.
On Oct. 16, Raj Rajaratnam, a billionaire hedge-fund manager, and five other people were accused of illegal insider trading. The feds say they made an illegal $20 million in profits between 2006 and 2009 by using secrets to trade in a variety of companies in the biggest insider-trading case involving a hedge fund.
One of those companies was the computer-chip maker Advanced Micro Devices, or AMD. The FBI says the accused traded on tips about an Abu Dhabi investment in AMD. Ironically, it looks like they lost money on the deal, but that doesn’t matter to the law.
Information is always valuable, and secret information is the most valuable kind. The Securities and Exchange Commission says illegal insider trading is when you violate a trust or confidence and buy or sell a stock using “material, nonpublic information.”
There are thousands of Web sites and blogs, newsletters and tip sheets that traffic in information about companies and stocks, and that’s a good thing for investors. More information is better than less, and more transparency is better than secrets held by a few.
Let’s not allow the hunt for alleged illegal traders put a chill on good investors who dig for the truth — and share it with the rest of us.