CIRCLE OF FRIENDS

A senior correspondent for Fox Business Network profiles the ongoing insider trading prosecutions that have secured convictions for more than 70 hedge fund traders.

Gasparino (The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System, 2009, etc.) describes his book as “an attempt to provide some perspective on what regulators view as the white-collar crime of the century.” He details the investigations that have ensnared such multibillion-dollar outfits as Raj Rajaratnam's Galleon hedge fund and are closing in on Steve Cohen's huge SAC Capital. Hedge fund managers cite their use of the “mosaic theory of investment,” careful research, expertise and skill in putting together profit-making analysis as the reasons for their consistently outsized returns. Federal investigators insist they come from an illegal edge over public investors and aim to level the playing field. Gasparino demonstrates that their charges are credible, showing teams from the Manhattan U.S. Attorney's Office, the SEC and the FBI persuading juries with good detective work, undercover informants and wiretaps. The author's presentation of the succession of these cases, as well as those against the research firms that provided tips to the big players, is detailed and well-written. He provides perspective with a history of insider trading going back to the 1920s, covering the evolution of laws against insider trading under the Roosevelt, Kennedy and Reagan administrations. (Major prosecutions of Ivan Boesky and Michael Milken took place in the 1980s.) After discussing whether insider trading should be a crime, Gasparino raises the question of proportionality, juxtaposing hedge fund prosecutions with the examples of banks and bankers deemed too big to prosecute, even though their conduct led to the economic collapse of 2008.

A thoughtful, provocative investigation and assessment.