if you believe the SEC, insider trading is a scourge that must be eliminated from our capital markets:
Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.
Given all the effort the SEC spends on enforcing its absurd rules against insider trading and imposing the draconian penalties for violating those rules, one would expect that the SEC staff would be purer that Caesar's proverbial wife. But it turns out not to be the case:
People working for the U.S. Securities and Exchange Commission who owned stock in companies under investigation were more likely to sell shares than other investors in the months before the agency announced it was taking enforcement actions, according to a new academic paper.
SEC employees holding shares of five firms including JPMorgan Chase & Co. and General Electric Co. (GE) in 2010 and 2011 sold stock in 62 percent of the trades they initiated, compared with 50 percent among all the investors who traded those shares in that period, Emory University accounting professor Shivaram Rajgopal reports in the paper.
Rajgopal, who plans to present the work today at a University of Virginia accounting seminar, said in a telephone interview that while the analysis doesn’t prove misconduct it points out a suspicious pattern.
Of course, this isn't the only time the SEC has failed to police itself. To cite but one sore point, the SEC consistently fails to comply with the internal control rules it requires corporations to comply with.
Maybe in the future, the SEC will be a but less sanctimonious about its enforcement program.
But I doubt it.
Update: Broc Romanek claims to have debunked the study. Since I don't share his faith in the integrity of SEC (or any other government) employees, I'm not inclined to give the SEC a pass on this one.
Update 2: Steven Davidoff thinks the SEC staffer's gains are attrobutable to "dumb luck" rather than insider trading.
