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Insider Trading Is Easy -- So Is Getting Caught

At a time when CSI is the top-rated TV show in the country and a rerun of Law & Order is always airing somewhere, you'd think most smart folks would know how easy it is to get busted for committing a crime.

That's obviously not the case.

Witness Sam Waksal.

He founded ImClone (IMCLE), a biotechnology company that developed a drug to treat cancer.

Bright guy. Unfortunately, he didn't exercise any of that brainpower before he tried to dump his own company's stock after finding out that the Food and Drug Administration would reject ImClone's Erbitux application.

Waksal was just sentenced to more than seven years in federal prison for insider trading and related crimes.

If only he'd thought about how simple it is for regulators to track every trade and uncover every phone call someone makes.

The stock and options exchanges in this country have computer systems that monitor price and volume movements of securities in real time. These programs track the price and volume histories of all securities and flag any aberrations that would suggest something unusual. A stock might go up too much in one day. Or there might be a few big trades ahead of a corporate news event.

If an exchange's surveillance team spots any odd movements, they will try to make sense of them, maybe calling a company to find out if there's news that's about to break. Or the investigators might check out big rises or falls in a stock around corporate news that's already public.

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