Insider trading is a victimless crime

IN A column in Business Report on Tuesday, Today’s Trustee editorial director Allan Greenblo said Dave King, who attempted to diddle the taxman and ended up being relieved of R1.057bn by the South African Revenue Service, should still be charged with insider trading.

Greenblo says King perpetrated a hoax. Its exposure “opens a Pandora’s box of insider trading”. Perhaps. But I take issue with the criminalisation of insider trading. In my view the King case is different in that he clearly told a pack of lies to potential investors. That’s fraud, in my book.

As for genuine insider trading, where an individual obtains information not available to anyone else, and uses it to his advantage, I consider that a perfectly normal element in the market. It is part of the complex, hidden process through which the market makes a price.

In all the outrage about insider trading I have yet to see the author- ities parading anyone who has been damaged by an inside trade. Where are those who have been injured?

They don’t exist. Classical insider trading is used only once. Immediately it is used, the information becomes public. Someone bought or sold inexplicably or unusually. The market is alerted. It quickly unravels what caused this. But who was damaged and where is this person?

Criminalising insider trading is an example of regulation advanced energetically by those who take it upon themselves, like avenging crusaders, to put right a wrong that doesn’t exist.

Insider trading is a crime without a victim.

If I have information which tells me that I can make money by buying or selling a counter, and make use of it, what have I done that damages anyone? The buyer or seller was in the market anyway. I haven’t advanced any trumped up scheme. I have simply offered to buy or sell. If, later, someone claims he wouldn’t have bought or sold had he known what I knew, how can he really prove that? Why should I believe him? Why should anyone, for that matter? Perhaps he’s just saying it to get out of a deal, or to make additional moolah.

Raj Rajaratnam, a self-made hedge fund billionaire, famously got an 11-year sentence and $150m fine for conspiring to engage in insider trading and fraud in the US.

He bribed execs to spy for him and used the information to trade.

I would have thought industrial espionage (and fraud) more appropriate charges.

There is probably an argument that old-fashioned morals stand against using inside information for personal gain — but it isn’t criminal (yet) to behave amorally.

Greenblo can huff and puff all he likes. The King example that has so shocked him is about fraud. Even Greenblo can line up the institutions who were damaged (and, by extension, the investors on whose behalf they act). There were real victims here, not imagined ones.

But that’s simply not the case with genuine insider trading, which relies not on anyone lying or constructing a devilish scheme, but on making use of a piece of information to which, for a brief period, perhaps minutes, only he is privy.

I hope Greenblo concedes, but I bet he won’t.