High-Profile Cases Can't Slow Insider Trading

The precedent-setting prosecutions of Milken and Boesky don't seem to be an effective deterrent.
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One would have thought all the humiliating press coverage of top Wall Street officials being hauled away in handcuffs in the 1980s would have put a dent in illegal insider trading.

At least that's what the

Securities and Exchange Commission

hoped. Statistics show otherwise.

Data compiled since the late 1980s -- heady days when notorious former Wall Street financiers Michael Milken, Ivan Boesky and Martin Siegel were charged with and pleaded guilty to violating securities laws -- show insider trading has remained a fairly constant problem, the Securities and Exchange Commission says.

If anything, for about the first half of the 1990s, illegal insider trading shifted from kingpins of Wall Street to naive securities-trading amateurs on "Main Street" and apparently back again, says David M. Levine, a senior advisor the SEC's director of enforcement.

"Alarmingly, in the past five years, we're now seeing seepage back onto Wall Street," Levine says. "One would have thought that our message would have resonated far and wide."

In 1986, the SEC brought 313 securities violations cases including 34 or about 10%, that alleged illegal insider trading. Last year, the agency brought 525 overall securities cases, including 57, or again about 10%, that alleged insider trading.

The SEC now has proposed rules that, for the first time, would put into writing a specific definition of what constitutes illegal insider trading. In prior years, the agency has enforced insider trading under a general fraud statute.

The rule change was prompted, in part, by two recent appeals court rulings that made it more difficult for the SEC to go after inside trading violators.

One program that has not caught on since the high-profile insider trading cases of the 1980s is an effort

Congress

approved in 1988 to try to attract tips by offering rewards.

The program authorized the SEC to grant up to 10% of the money it collects in insider trading enforcement cases to a person who provides information leading to successful charges.

In the 12 years since then, the agency has offered just one reward, for $3,500. And that was in 1989.

"There's not a lot of action," SEC spokesman John Heine says. "In the entire history of the program, there's been one bounty paid."

Levine says he's disappointed that the prosecutions of the 1980s haven't halted illegal insider trading.

"When we bring our cases, one of our hopes is that they'll have a deterrent effect," he says. "Insider trading is a crime of greed."