Friday, June 15, 2007

Small-time Insider Trades Get Punished

I don't know if this is simply an anomaly or a deliberate strategy by the Commission, but according to an article at the White Collar Prof Blog, the SEC has been bringing some very small cases. In one, the defendants are accused of illegal profits of less than $4,000!

Of course, with disgorgement and a three time penalty the fine is relatively significant, although these defendants paid a one-time penalty, plus interest. While we might question the wisdom in the Commission bringing a $4,000 case, the real question is what were these defendants thinking? They trade on inside information, and buy 500 shares. They sell after the announcement and make $4,000. Is that worth the risk? Of course not and since their defense attorney's retainer was undoubtedly more than their profit, they had no choice but to settle.

At least they didn't lie about their trading...

The posting led another blog, Best in Class, to post a contest for the smallest insider trading case. Last time I looked, a reader had identified an insider trading case where the alleged profits were $600.00.

So much for the theory that the trade is so small that the government won't find it...
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