Friday, October 26, 2007

Corruption! Everywhere You Look

A senior Securities and Exchange Commission official said on Thursday insider trading appeared to be "rampant" among Wall Street professionals and the agency has formed a working group to focus on it.

"I believe we're going to see more insider trading cases," Linda Chatman Thomsen, the SEC's enforcement director, told reporters on the sidelines of a securities fraud conference.

"I am disappointed in the number of cases we are seeing by people who make an abundant livelihood in the market that they are sort of abusing by insider trading," Thomsen said, referring to cases already brought against professionals this year.

Insider trading "appears to be rampant" among Wall Street securities professionals, she added.

Alice Fisher, assistant attorney general with the Justice Department's criminal division, echoed Thomsen's sentiment and said: "The number of insider trading cases don't seem to be going away."

In the past year, SEC enforcement lawyers have brought increasing numbers of insider trading lawsuits and settlements. Recent high-profile cases include charges against a husband and wife in Hong Kong for trades in Dow Jones & Co Inc shares ahead of News Corp's $5 billion takeover bid, and guilty pleas from three former Countrywide Financial Corp (CFC.N: Quote, Profile, Research) executives for trading company shares ahead of a disappointing profit report.

Also, in March U.S. prosecutors charged 13 people, including employees at top Wall Street banks UBS (UBSN.VX: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research) and Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research) in what they called one of the most pervasive trading rings since the 1980s. The SEC also brought civil charges against 11 people, as well as against three hedge funds.

Insider trading involving hedge funds is the focus of one of the four internal working groups the SEC has set up to tap expertise and coordinate efforts throughout the agency. The $1.8 trillion hedge fund industry guards its secrecy and complex trading strategies.

The SEC also has a working group looking at municipal securities, one focused on subprime mortgage lending issues, and a group examining stock options backdating by executives.

Thomsen expected more enforcement actions related to options backdating, but would not provide a time frame.

"There will be more to come," she told the securities law conference.

More than 180 companies have been investigated by the SEC or have conducted their own internal inquiries into possible manipulation of stock option grant dates.

The SEC has brought civil charges against former executives at several companies, including Apple Inc's (AAPL.O: Quote, Profile, Research) former general counsel.

In the subprime lending area, Thomsen said there was a wide variety of potential violations, including disclosure issues and the packaging of subprime loans.

At the same conference, Peter Bresnan, the SEC's deputy director of enforcement, highlighted 10b5-1 trading plans and said the agency had several under investigation.

The plans allow corporate executives to file a trading plan with the agency for future sales of their stock. The SEC has been looking at the general issue of whether executives are illegally trading on insider information and using the preset trading plan to avoid suspicion.

Bresnan would not comment on reports the SEC has opened an informal probe into stock sales by Countrywide Chief Executive Angelo Mozilo. The agency has not confirmed or commented on the reports.

Separately, Bresnan said the agency was seeing a trend in larger rings involving more people, international cases, as well as those involving securities professionals and hedge funds.

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