In the wake of several high profile insider trading indictments and prosecutions, the United States government has begun a vigorous campaign against what federal investigators say is a "rampant" crime wave.

Currently, the government is investigating some 240 individuals and preparing insider trading cases against approximately 120 of them, including Wall Street insiders, hedge fund traders and other insiders in the corporate world, according to reports.

Illegal insider trading is defined as the buying or selling of equities or investments based on knowledge not available to the general public. Trades may be made for profit, or to avoid a loss. Persons convicted of insider trading can be fined and or sent to prison.

Famous Insiders
The most significant recent insider trading case and one of the biggest in history was the conviction of billionaire hedge fund operator Raj Rajaratnam. He was sentenced to 11 years in prison, ordered to forfeit $53.4 million and pay a $10 million fine. Rajaratnam's prison sentence was the longest ever imposed on an insider trading conviction and demonstrates the government's new resolve in ending these widespread crimes.

In its effort to bring alleged insider trading violators to justice, to deter further such cases, and to make the public aware of the severity of the crime, the FBI issued an anti-insider public-service announcement featuring the actor Michael Douglas. Douglas played the notorious corporate raider and insider trader Gordon Gekko in the 1987 movie, "Wall Street."

The fictional Gekko famously said, "Greed is good," in a long speech to shareholders, as he justified the break up and asset-by-asset sell off of the corporations he bought; Gekko did not mention, however, his insider trading.

In his public-service announcement Douglas says: "I'm Michael Douglas. In the movie 'Wall Street,' I play Gordon Gekko ... The movie was fiction, but the problem is real ... To report insider trading, contact your local FBI office." Douglas reportedly made the announcement pro bono.

Heavy Sentence
Tagged "Perfect Hedge," the FBI probe includes what it calls "targets," people believed to have committed insider trading violations, and "subjects," possibly other violators who may help the government build cases against the targets. The government investigation appears to be the most widespread and deepest of the modern era.

Concurrent with the government's drive against insider trading, are proposed amendments to the Federal Sentencing Guidelines for these violations now pending (as of early March) before Congress. With increased severity of prison sentences and heavier fines for securities fraud, the government hopes to both prevent such crimes and to put pressure on defendants and those convicted, to cooperate with the government in investigating and prosecuting others similarly accused.

These potentially heavy sentences should provide strong incentives for cooperating with the government. Information provided by cooperating witnesses and their testimonies at trial, are key elements in successfully prosecuting an insider trading charge, the government claims.

Previously, the government based most of its insider trading cases on wiretaps and other tactics also used against narcotics traffickers and terrorist targets.

Point System
The proposed new sentencing guidelines include a point system for determining the duration of a sentence. A conviction for what the bill calls "sophisticated insider trading" would be assigned two points. Four points would be assigned to the convicted violator if they were an officer or director of a publicly traded company, affiliated with a brokerage company or an investment or financial advisor. More points require more prison time, possibly as long as a decade behind bars.

The Bottom Line
Despite the government's new focus on insider trading, insider trading rings continue to exist, which, the government alleges, encompass people from "... more walks of life." Among these alleged violators are analysts, bankers, consultants, corporate officials and traders.

However, some attorneys specializing in white-collar crime have accused the government of too broadly defining insider trading. Many traders, claim the attorneys, trade on information they believe is legal, which may conflict with the government's definition of what's legal. The stepped-up government probe is expected to eventuate in additional arrests and indictments, with an eventual reduction in the crime.

Related Articles
  1. Insurance

    Medicare 101: Do You Need All 4 Parts?

    Medicare is the United States’ health insurance program for those over age 65. Medicare has four parts, but you might not need them all.
  2. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  3. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  4. Economics

    Will Putin Ever Leave Office?

    Find out when, or if, Russian President Vladimir Putin will ever relinquish control over the Russian government, and whether it matters.
  5. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  6. Investing Basics

    What are the fiduciary responsibilities of board members?

    Find out what fiduciary duties a board of directors owes to the company and its shareholders, including the duties of care, good faith and loyalty.
  7. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  8. Budgeting

    How Much Will it Cost to Become President In 2016?

    The 2016 race to the White House will largely be determined by who can spend the most money. Here is a look at how much it will cost to win the presidency.
  9. Active Trading

    What Is A Pyramid Scheme?

    The FTC announced it had opened an official investigation of Herbalife, which has been accused of running a pyramid scheme. But what exactly does that mean?
  10. Investing News

    What Affirmative Action Means for Businesses

    A look at what Affirmative Action means for your business.
  1. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  2. Can the IRS audit you after a refund?

    The U.S. Internal Revenue Service (IRS) can audit tax returns even after it has issued a tax refund to a taxpayer. According ... Read Full Answer >>
  3. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  4. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
  5. How do financial advisors help you avoid escheatment?

    Financial advisors can help you avoid the escheatment of your financial assets by regularly reviewing all of your accounts, ... Read Full Answer >>
  6. Are 401(k) accounts escheatable?

    Typically, 401(k) plans are not subject to state escheatment laws because they are covered under the Employee Retirement ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center