Carl Icahn dumps $31M in steel-related stocks before White House tariff talks
latimes.com
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Martha Stewart wound up being prosecuted for "obstruction of justice" and "conspiracy", the go-to offenses when prosecutions otherwise hit a wall.
Stewart's prosecution came at time when insider trading appeared common and when regulators were looking for a visible victory. A celebrity prosecution gets a lot of press without actually angering people with real power. Stewart was a mere millionaire, not a multimillionaire or billionaire.
Edit: Well, I stand corrected, she was a multimillionaire at the time. Still it's hard not to see her as relatively small potatoes in the world of stocks.
https://www.thoughtco.com/martha-stewarts-insider-trading-ca...
Moreover, if anything, Stewart's manifestly unfair and abusive case shows prosecutors choose their examples based not on how dirty the target is but rather how convenient they are. Those who go down, don't go down based on how much they break or skirt the law but based on their connections to power failing.
Maybe this is why I am not rich. I just don't have the right mindset.
Also, all humans have it in their nature to test limits. And what we are seeing, among some of the wealthy and would-be wealthy in the U.S., is that with each egregious behavior, particularly financial and economic, the worst they face is a fine that most often represents a fraction of their profit from the behavior.
So, yes, I can see this. Get rich by not giving any money away unnecessarily, practiced diligently and relentlessly over years and decades, combined with the lesson that you won't be punished -- at least, not significantly.
So, why "waste" 31 million?
I don't know that this is what happened. But I can imagine it.
I'm not one of them, just service their stuff, usually with them watching me.
I'm constantly astonished over just how frugal they are. Their bodies are decaying, but as long as the assets grow; they seem happy.
Actually, many are lonely. Their kids just use them. People treat them nicely because they just might need them one day, and they know they are being placated.
They break laws to save a few dollars, while drowning in seemingly unending wealth?
The crimes are usually hidden, like hiring immigrants under the table--not even paying minimum wage, or shoplifting from Nordstrums. (I heard bigger department stores will not prosecute the better spenders. They will detain, and look up how much they spent in the past. If enough, the cops are not called.)
SEC/Taxes--it's just a game when you have the money to get out of a sticky situation. I can afford to break the law is part of the problem?
This is why I feel it time to tie Fees/Fines to Income.
I grew up around them, and they are different when they think no one is looking, or they think they can get away with with it.
I'll get hammered for bringing up the differences between the "classes", but I'm tired of glorification they get.
Buffet is one of the few I do like though.
Martha Stewart “avoided a loss of $45,673 by selling all 3,928 shares of her ImClone Systems stock on December 27, 2001, after receiving material, nonpublic information from Peter Bacanovic, who was Stewart's broker at Merrill Lynch.” (wiki)
The Galleon Group case ensnared Rajat Gupta (former head of McKinsey), who provided insider information that helped Galleon Group net a $17 million profit by tipping them off about Warren Buffett’s investment into Goldman Sachs during the 2008 financial crisis. Galleon Group’s owner, Raj Rajaratnam was a billionaire at the time of the insider trading.
SAC Capital (Stephen A Cohen’s firm, now known as Point 72) was charged with using insider information to generate $275 million in profits and averted losses. Cohen is a multi billionaire.
I recommend reading The Chickenshit Club. Given the institutional and resource constraints on regulators and prosecutors, the odds that you actually are punished are slim. Leaving aside any potential political machinations, behavioral economics resource has shown that humans generally value avoiding losses much more than making more money. Behavior like the endowment effect comes into play here. Bottom line, what may seem like pocket change for billionaires may cause “irrational” behavior.
These 2 instances in which they caught red-handed were simply the strongest cases that the U.S. government could bring.
Cohen is a multi-billionaire because he built a business which is designed to launder insider information into "clean" information without implicating himself or his lieutenants.
Raj Rajaratnam started at Needham & Co. in 1985, and worked his way up to firm president in 1991. He eventually bought the firm, and renamed it Galleon Group. If you look at the history of returns for Galleon, the most lucrative years were 1999 through 2002. Raj rode the tech bubble up, and got out before it burst. You don’t generate outsize, 90%+ returns solely on the basis of insider information.
As for SAC, for the vast majority of his career, Stephen A Cohen was a momentum trader in the style of Paul Tudor Jones. If you read the book Black Edge or watch the PBS documentary To Catch a Trader, at some point in the late 90s to early 2000s, Cohen started employing expert networks. The use of expert networks was legal at the time, and remains a grey area. Obviously, at some point Cohen crossed the line into outright insider trading.
My point for both of these examples was that both men were overwhelmingly rich by the time they got involved in insider trading. We can speculate on why they did it, but to suggest that they made their first hundred millions or billion with insider trading is inaccurate.
As to Raj you may be right I haven't followed as closely.
Whether insider trading should be illegal and what the lines are exactly is absolutely open to debate, but it seems clear that Cohen at least built his business to maximize his insider information edge.
Matt Levine has some good writing on the subject of insider information for the curious.