My friend and UCLAW colleague Sung Hui Kim has written extensively about why we should think of insider trading as a form of corruption, in articles such as The Last Temptation of Congress: Legislator Insider Trading and the Fiduciary Norm Against Corruption http://ssrn.com/abstract=2029322, and nsider Trading as Private Corruption http://ssrn.com/abstract=2326582.
I was reminded of her work by a new analysis of how political insiders used their informational advantages to profit during the financial crisis:
Our paper examines the relation between political connections and informed trading by corporate insiders within the context of the 2007-2009 Financial Crisis. The unprecedented magnitude of government intervention during the Financial Crisis, the substantial impact of the intervention on firm value, and the political nature of the intervention provide a powerful setting to examine the relation between political connections and informed trading. It is now well known that deliberations on government intervention largely took place in private meetings between government officials and insiders at leading financial institutions; details regarding the application and qualification process for funds from the Troubled Asset Relief Program (TARP) were not publicly disclosed; and political connections appear to have played a role in the allocation of these funds (e.g., Duchin and Sosyura, 2012). Thus, politically connected insiders at leading financial institutions were in a position to be disproportionately privately informed about the scope of government intervention, how this intervention would affect their firm, and details of any forthcoming TARP monies.
The executive summary continues here.