A Mockery of the Game

The call. The edge. The inside scoop. At one point, you could have it. At one point, before Regulation Fair Disclosure (FD), persistence, hard work, going to meetings, doing everything you could to learn a company entitled you to a callback from the company. The rules were clear: If you got something that was material and non-public, you couldn't trade on it, you were frozen. But there were some blurred lines and the intensive research shops with great industry contacts could get an ever-so-slight heads up that could make a difference. Or you could go to a one-on-one where management might let slip something no one had, and you could have that momentary head start.

But Regulation FD ended all that. All the insider calls, the disclosure at one-on-ones, anything that smacked even of proprietary information. The rules were no longer voluntary. It wasn't a question of freezing. It was a question of talking. You couldn't talk to "them." Hedge funds could not talk one-on-one to anyone of authority at a company. The insider would face prosecution, do you weren't even supposed to try.

Many hedge funds switched M.O.'s post-Regulation FD. They want macro. They went top-down. They did sector analysis. They took a more commodity-driven approach.

But some couldn't kick the habit, either because they had no other way of doing business or because, without the inside call, they couldn't beat the market.

When I read through the indictment alleging what Galleon did -- and the idea that there is a Galleon without Raj is pretty ludicrous, he was Galleon -- you could see that whether it be with Intel (INTC - commentary - Trade Now) or Akamai (AKAM - commentary - Trade Now) or Google (GOOG - commentary - Trade Now) or Sun Microsystems (JAVA - commentary - Trade Now), Regulation FD meant nothing at all. The indictment has them calling people they weren't allowed to call. They were allegedly getting information that should have frozen them, even as they should never have gotten it to begin with. And, worse, when they couldn't coax it, according to the indictment, they paid for it, giving the winnings of one illegal trade to the tipper for the next.

ALL JIM CRAMER BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

At the time of publication, Cramer had no positions in the stocks mentioned.

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.