LBO Crystal Ball

But proving insider trading is never easy, and some say rising swap prices don't prove anything about supposed insider trading. For one thing, the traders who work at Wall Street banks are some shrewdest players in the game. For another, everyone trying to game the stock and swap markets is constantly eyeing one another for a supposed edge, however slight.

Janet Tavakoli, a Chicago credit derivatives consultant who advises hedge funds and other savvy investors, points out that the banks writing swap contracts devour any information that can move a company's bonds.

For that reason, hedge funds will take note of any trading by a bank that writes a swap. They'll often mimic the bank's trades, assuming the bank knows something.

Even within firms, players are always on the lookout for what they hope might be a giveaway twitch.

Traders may start pushing up the price of a swap if the bankers at their firm start asking questions about the quality of a company's bonds. Tavakoli says those questions often are interpreted by traders as indicating something is up.

"You will have people on the loan desk going down to the trading desk and saying, 'What do you know about this name?" says Tavakoli. "On the CDS trading desk, the traders are on top of every bit of news about bonds."

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