This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Digital Skeptic: Insider Trading? Why Even Bother?

Stocks in this article: ELN

But he points out, the profits made were comparatively small. For all of Rajaratnam's skullduggery, he netted $63.8 million over the roughly seven-year period defined by the indictments -- about $9 million a year. Not that stellar a return, considering Rajaratnam managed a reported $7 billion in assets in 2008.

"A longer-term view probably would have netted more return," Foege argues."If there is one thing I have learned, it's that the real money is made in finding quality companies where there is an opportunity to realize value over the long haul."

What's a tipster know, anyway?
Foege also makes a powerful argument that insider information isn't as unique than as it seems. Take the red-hot case of Dr. Sidney Gilman, a recently retired University of Michigan professor, and Mathew Martoma, an ex-analyst with a shop called CR Intrinsic Investors.

SEC documents break down in grisly detail how Gilman was allegedly paid $1,000 an hour to feed Martoma insider data concerning details of an Alzheimer's drug trial from Elan (ELN). Martoma was fed knowledge by Gilman of the looming failure of the trial before the larger market knew, the SEC said. Martoma restructured his company's investment in Elan, supposedly netting $276 million for the firm -- and a $9.3 million bonus for himself.

Foege agrees that while the specifics of trials are often secret, such medical research is often done in a near public, peer-reviewed fashion, putting a surprising amount of data in plain sight. What the supposed one-of-a-kind, expert tipster is offering as "insider information" is much more fluid -- and more visible -- than uneducated investors think, making the risks the company was running crystal clear, he said.

"I've done enough medical device research to tell you," Foege said. "This kind of work is not done in a vacuum,"

Why bother?
Which leads investors to the obvious question: If the digital age offers so much of the information investors need, why do the rich and powerful mess with what might be dangerous data?

"Analysts are under a huge amount of pressure to reach performance goals," Foege said. "And they are looking for an edge. So sometimes they miss the information forest for the trees."

The problem is, in the digital age, if you wander in that forest for too long, you may wind up stumbling into the woodshed.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.66 +8.01 0.39%
NASDAQ 4,781.4240 +16.0440 0.34%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs